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L’Oréal Stock Climbs on Nestlé-Givaudan News

Nestlé announced Friday that it will sell its 10 percent stake in the Swiss fragrance and flavors supplier.

PARIS — L’Oréal stock rose strongly Friday following news that Nestlé will sell its 10 percent stake in Givaudan, the Swiss fragrance and flavors supplier.

This story first appeared in the December 9, 2013 issue of WWD.  Subscribe Today.

The French beauty giant closed the day up 3.6 percent to 126.80 euros, or $173.64 at current exchange, as market speculation percolated yet again that Nestlé could divest its 29.3 percent stake in L’Oréal in April, once a shareholder pact expires.

As reported, Goldman Sachs is managing the sale of 926,562 shares of Givaudan through an accelerated book-building transaction. The stake is valued at about 1.1 billion Swiss francs, or $1.23 billion.

Nestlé acquired the company’s shares in 2002, when it sold the food ingredient concern FIS to Givaudan for a combination of cash and stock. “Nestlé has been very satisfied with its holding, but believes now is the appropriate time to divest,” the company said.

“It was not a strategic investment,” said Patrick Hasenböhler, an equity analyst at J. Safra Sarasin.

In a note, the bank said Nestlé’s investment in Givaudan was a “success” and deemed it an appropriate time to sell the stake, since the company’s “valuation appears rather rich now, so the stock’s potential for making further gains appears limited, at least in the near term.”

Givaudan, meanwhile, closed down Friday 2.1 percent to 1,210 Swiss francs, or $1,354.35.

Nestlé is Givaudan’s second-largest shareholder, and the company recently sold most of its stake in Jenny Craig to North Castle Partners for an undisclosed sum. The news regarding Givaudan reignited speculation for some that Nestlé could sell its stake in L’Oréal.

“Nestlé has announced that it will make a decision in 2014 for its L’Oréal stake. However, we would read nothing from this sale [of Givaudan shares] into a possible decision concerning what Nestlé will do,” said J. Safra Sarasin in the note. “Sale to L’Oréal or maintenance of status quo are the likeliest scenarios.”

The bank also reiterated its neutral rating on Givaudan and Nestlé.

For L’Oréal’s part, company chairman and chief executive officer Jean-Paul Agon neither confirmed nor denied during a financial analyst meeting in August that the French beauty giant might buy back Nestlé’s stake in the firm. He said L’Oréal has considerable financial wherewithal due to a 9 percent stake in Sanofi, the French pharmaceutical concern whose 2012 sales were 34.95 billion euros, or $44.94 billion at average exchange, and positive cash.

“We will see what the opportunities are to use it, but I am confident there will be opportunities,” he said at the time. “We’ve always said that our stake in Sanofi was financial, not strategic. We could use it if an opportunity were to arise.”

Over the past few months, L’Oréal has been acquisitive. It purchased men’s skin-care brand Nickel, and the company has been in talks with Shiseido Co. Ltd. to buy the Carita and Decléor brands, for instance.

At L’Oréal, the existing shareholder agreement stipulates that neither Nestlé nor the Bettencourt family, which owns 30.5 percent of the French beauty giant, can increase its stake in L’Oréal during the lifetime of Liliane Bettencourt, the daughter of the company’s founder who is now 91, and six months after her death. However, the parties are free to sell their shares, each of them having conceded the other the right of first refusal until April 24, 2014. Following that date, the parties may offer the stakes to any third entity.