PARIS — With a view of sharpening its focus on food, beverage and nutritional health products, Nestlé said Thursday that it will explore strategic options for the Nestlé Skin Health division.
The news reignites speculation over the Swiss conglomerate’s stake in L’Oréal.
“After further analysis and consideration, the board has come to the conclusion that the future growth opportunities of Nestlé Skin Health lie increasingly outside the group’s strategic scope,” Nestlé said. “The review is expected to be completed by mid-2019.”
Earlier this year, the board of directors of the Vevey, Switzerland-based maker of Kit Kat, Alpo and Gerber baby products, as part of its regular strategy review, assessed Nestlé’s nutrition, health and wellness strategy.
“By enhancing the group’s focus, the board expects to deepen resource commitment to its key growth initiatives and facilitate the implementation of its accelerated long-term value creation strategy,” the company said.
Lausanne, Switzerland-based Nestlé Skin Health includes a portfolio of medical and consumer brands. In the Consumer Care division there’s Cetaphil and Proactiv. The Prescription division counts Epiduo and Soolantra, while the Aesthetics division comprises the Restylane and Azzalure brands.
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Nestlé Skin Health, which employs more than 5,000 people in 40 countries, in 2017 generated revenues of about 2.7 billion Swiss francs, or $2.79 billion, according to the company.
“Our board is convinced that exploring strategic options for Nestlé Skin Health is the best long-term interest of this business and Nestlé shareholders,” said Paul Bulcke, chairman of Nestlé’s board.
The Nestlé Skin Health news heightens the buzz about whether Nestlé will retain its large stake in L’Oréal.
As reported, March 21 marked the expiration date of the longstanding pact between the Swiss conglomerate and the Bettencourt Meyers family — L’Oréal’s two largest individual stakeholders, with shares of 23.12 percent and 33.05 percent, respectively.
The principle terms of the agreement outlined that neither party could increase its stake in L’Oréal during the lifetime of Liliane Bettencourt or in the six months after her death. The sole child of L’Oréal’s founder, Eugène Schueller, died on Sept. 21, 2017.
In the run-up to the pact’s termination, Nestlé on Feb. 15 issued a statement saying: “Our shareholding in L’Oréal continues to be an important investment for us, and we remain committed to the company that has given us very good returns over the years. We have full confidence in L’Oréal’s management and strategic direction.
“The shareholders agreement between Nestlé and the Bettencourt family is due to expire on March 21, 2018. In order to maintain all available options for the benefit of Nestlé’s shareholders, the board of directors has decided not to renew this agreement. We do not intend to increase our stake in L’Oréal and are committed to maintaining our constructive relationship with the Bettencourt family,” it continued.
Financial analysts had in the past outlined a few main scenarios that could unfurl, including the companies maintaining the status quo; L’Oréal buying back Nestlé’s stake, which is valued at about 23 billion euros — partially financed by the sale of the beauty company’s 9.15 percent share of French pharmaceutical company Sanofi, or Nestlé either upping its holding in L’Oréal or acquiring the company outright. The first and second are generally considered the most likely possibilities.
During a financial analyst meeting held in early February, Jean-Paul Agon, L’Oréal chairman and chief executive officer, said whatever happens is in Nestlé’s hands, but “if Nestlé one day wants to sell, we are ready.”
Agon also reminded analysts of the benefits of having a constant, supportive shareholder base.
“Nestlé has been a great shareholder for 44 years,” the ceo said during the conference. “It’s also thanks to them — their loyalty and support — that L’Oréal has become what it is today.”
For its part, Nestlé has felt increasing pressure vis-à-vis L’Oréal since summer 2017, when activist investor Dan Loeb first argued that the group should divest its holding, calling it nonstrategic. Then in a quarterly letter to shareholders dated Jan. 22, his hedge fund Third Point, which owns a 1.25 percent share of Nestlé, reiterated that the Swiss company’s stake in L’Oréal is not aligned with the company’s core business.
Loeb wrote another letter to Nestlé’s top management, which was made public on July 1. In it, he said the company should divest as much as 15 percent of its business and reiterated Nestlé should offload its stake in L’Oréal.
“It is clear that the company’s non-core financial stake in L’Oréal should be sold since the board remains unable to articulate a compelling long-term strategic rationale for its continued ownership,” the letter said.
Already, four years ago, Nestlé pared its holding in L’Oréal to 23.29 percent from 29.4 percent through a complex transaction, which raised the Bettencourt Meyers family’s stake to 33.31 percent from 30.6 percent.
At noon CET, L’Oréal was trading up 1.3 percent to 201.10 euros, while Nestlé’s had risen 0.8 percent to 80.66 Swiss francs.