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Nestlé, L’Oréal Shares Fall on Swiss Firm’s Statement

The pact with the Bettencourt Meyers family is due to expire on March 21.

PARIS — Shares of both Nestlé and L’Oréal closed down Thursday, hours after the Swiss conglomerate said it will not renew its shareholder agreement regarding the French beauty giant or raise its stake in the company.

Nestlé shares ended the day with a 2.1 percent decline to 75.70 Swiss francs, or $82, while L’Oréal stock dipped 0.3 percent to 174.70 euros.

As reported, March 21 marks 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 outline 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 died on Sept. 21.

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“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,” said Nestlé in a statement released on Thursday morning. “We have full confidence in L’Oréal’s management and strategic direction.

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“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.

“For now I would assume continuation of the status quo minus the shareholder pact,” said Eva Quiroga, an analyst at Deutsche Bank. “At some stage down the line they may sell their stake as it is not strategic to them, in which case L’Oréal would be delighted to buy it back as it would improve its earnings per share quite strongly.”

During a financial analyst meeting held late last week, Jean-Paul Agon, L’Oréal chairman and chief executive officer, said that whatever happens is in Nestlé’s hands, but “if Nestlé one day wants to sell, we are ready.”

Quiroga noted that Agon also reminded the audience of the benefits of having a constant, supportive shareholder base.

“Nestlé has been a great shareholder for 44 years,” said the ceo 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 last summer, when activist investor Dan Loeb 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.

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.