Nestle: No L’Oreal Deal Now

Nestle's chief financial officer Jim Singh said, "We are not in a hurry to do anything."

PARIS — Nestlé SA said it will not alter its stake in L’Oréal in April, but industry watchers still believe a change could take place in the mid- to long-term.

This story first appeared in the February 20, 2009 issue of WWD.  Subscribe Today.

“We are not in a hurry to do anything,” Jim Singh, Nestlé’s chief financial officer, said during a financial analyst conference call Thursday to discuss its 2008 results. He explained the Swiss food giant, which holds 30.6 percent of L’Oréal, would uphold its commitment to Liliane Bettencourt, who with her family owns 30.8 percent of the French beauty giant. Bettencourt is the 86-year-old daughter of L’Oréal founder Eugene Schueller.

According to a shareholder agreement, Nestlé is free to sell its stake in L’Oréal as of April 29. But it cannot take a majority share in the firm unless Bettencourt gives her permission or passes away, and, in that case, not until six months following her death.

“The conditions of Nestlé’s agreement with L’Oréal are public,” said Nestlé chief executive officer Paul Bulcke, during the press conference at company headquarters in Vernier, Switzerland. “This is a commitment which Nestlé will honor whatever the circumstances. Consequently, Nestlé does not need to take any action or decision regarding its stake in L’Oréal in April.

“The future of Nestlé’s participation in L’Oréal is an important topic for the group, which the Nestlé board of directors is addressing with great attention in the framework of our group’s global nutrition, health and wellness strategy,” he continued. “Nestlé’s participation in L’Oréal has been beneficial to both companies for many, many years, and Nestlé will continue to take a long-term strategic view in shareholders’ best interest.”

Speculation, meanwhile, remains rife over what Nestlé will ultimately do with its stake in L’Oréal. Adding fuel to the fire is the family feud between Bettencourt and her daughter, Françoise Bettencourt Meyers, who is due to inherit her mother’s stake in L’Oréal once she dies. Both sit on the firm’s board.

About a possible L’Oréal takeover by Nestlé, Chicuong Dang, an equity analyst at KBL Richelieu, said, “You can’t expect anything in the very, very short term, given the extremely difficult environment. In the short term, they just have to wait things out. Maybe they can get a better price.”

“I think it will be interesting to see what happens with Mrs. Bettencourt’s shares due to the family situation,” said another analyst, who spoke on condition of anonymity. “I think Nestlé might be able to increase its stake.”

L’Oréal and Nestlé already operate two joint ventures: Galderma, the dermatology brand, and Innéov, for nutritional supplements.

On Thursday, L’Oréal stock closed flat at 52.36 euros, or $66.36, while Nestlé’s ended up 5.83 percent to 39.18 Swiss francs, or $33.36.