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What to Watch: Nestlé’s Stake in L’Oréal

The long-standing shareholder agreement between the Swiss conglomerate and the Bettencourt family expires on March 21.

Will Nestlé maintain stake in L’Oréal? Only time will tell.

March 21 is the expiration date of the longstanding shareholder agreement between the Swiss conglomerate and the Bettencourt family — L’Oréal’s two largest individual shareholders, with stakes of 23.3 percent and 33.05 percent, respectively.

The principle terms of the pact outline that neither party could increase its stake in L’Oréal during the lifetime of Liliane Bettencourt, the sole child of the company’s founder, or six months after her death, which happened on Sept. 21. That means the countdown has begun, and starting on March 21 the parties no longer have to work in concert. (Each has been free to offer its shares to any third party since April 2014.)

Financial analysts have outlined a few main scenarios that could unfurl, including the companies maintaining their status quo; L’Oréal buying back Nestlé’s stake — partially financed by the sale of its 9.4 percent stake in Sanofi, or Nestlé either upping its share in the beauty giant or acquiring the company outright. The first and second possibilities are considered the most likely.

During a conference call with analysts on Sept. 26, Nestlé chief executive officer Mark Schneider said the company had no intention of changing its L’Oréal holding. At the time, he explained, “Our approach to this investment is currently not changing. I just wanted to [make] that clear.

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“This has been a very close, a very longstanding partnership,” Schneider continued. “This has been a fabulous investment for the company. The contribution to our earnings is not that far away from the share of market cap that it represents and hence, this investment is not diluting anything. It has been a good thing for the company.”

Nestlé already pared down its L’Oréal holding in a multistep transaction that closed in July 2014, when the company trimmed its stake from 29.4 percent to 23.3 percent.

The Swiss concern has been feeling increased pressure regarding L’Oréal since last summer, when activist investor Dan Loeb argued the group should divest its holding, calling it nonstrategic.