PARIS — Nestlé stock was on the rise in early afternoon trading on Wednesday, hours after the Swiss conglomerate, under pressure from an activist investor, announced that it would initiate a share buyback program of up to 20 billion Swiss francs (18.33 billion euros, or $20.83 billion, at current exchange rates).
Citing the favorable context of low-interest rates and strong cash flow generation, Nestlé said in a statement that “share buybacks offer a viable option to create shareholder value.”
By 12:20 p.m. CET, Nestlé stock was up 1.7 percent to 85.75 Swiss francs.
As reported, late on Sunday night Dan Loeb’s hedge fund Third Point sent a letter to investors saying it now owns about 40 million shares, or 1.25 percent, of Nestlé. Third Point argued for the Vevey, Switzerland-based maker of Kit Kat, Alpo and Gerber baby products to divest its 23.1 percent holding in L’Oréal, which it deems nonstrategic, among other suggestions.
The following day, both Nestlé and L’Oréal’s stocks surged around 4 percent on the news.
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Nestlé said on Tuesday that the company’s board of directors had approved the buyback program due to start on July 4. It will be completed by the end of June 2020.
Nestlé added: “The volume of monthly share buybacks is contingent on market conditions but likely to be backloaded in 2019 and 2020. Should any sizeable acquisitions take place during this period, the share buyback program will be adapted accordingly.”
The news came as the company outlined its future value creation model, with a focus on profitable growth, margin improvement and capital efficiency.
“The company will continue to adjust its portfolio in line with its strategy and growth objectives,” Nestlé said.
There has been longstanding speculation over what Nestlé might do with its 23.3 percent stake, valued at more than 25 billion euros, in L’Oréal. Already, the Swiss company three years ago pared down its holding in the firm.
In February 2014, Nestlé announced it would reduce its stake in L’Oréal from 29.4 percent. At the time, Nestlé chairman Peter Brabeck-Letmathe said the company’s share in L’Oréal was a financial involvement “but also strategic with long-term interest.”
He said the change in the holding in no way represented the first step of a disengagement from L’Oréal, “not at all.” The executive emphasized Nestlé’s commitment and support for L’Oréal.
The complex, multistep transaction closed in July 2014.