Nestle looks at options for stake in L'Oreal

Swiss food giant Nestle SA is looking at options to reduce its stake in French cosmetics firm L'Oreal, Bloomberg reported on Saturday, citing sources with knowledge of the matter.

Nestle has informed L'Oreal what it intends to do with its 29.3 per cent stake, and both companies are reported to have discussed the issue with banks, although they have not decided when the sale would take place.

The Bettencourt family,  owns a 31-per cent stake in L'Oréal, and 29.3 per cent in Nestle, the combined worth of which is an estimated $30 billion.

Fearing that the then  French Socialist Party's presidential candidate François Mitterrand might nationalise L'Oréal, the Bettencourt family invited Nestlé in 1974 to take an indirect stake in the company.

Under the terms of the agreement between Nestlé and the Bettencourt family, neither party can increase its stake in L'Oréal during the lifetime of Liliane Bettencourt and six months after that.

As of 29 April 2009, both are free to sell their shares with each giving the other a first right of refusal until 29 April 2014.

After that date, both are free to sell the shares to a third party.

Nestle had earlier said that it would examine whether L'Oréal fits into the long-term Nestle strategy of focusing on health, wellness and nutrition, an indication that it may offload its stake in April, giving L'Oréal the first option to buy the shares.

Jean-Paul Agon, CEO of L'Oreal, had said last August that the company could raise money to fund acquisitions by selling its 9 per cent stake in drugmaker Sanofi worth around €9 billion.

L'Oreal also has cash reserves of €572 million as of June last year.

If L'Oreal buys back Nestle's stake, it intends to cancel the shares, which may raise earnings per share by between 15 and 20 per cent for the remaining shareholders.

Earlier some analysts had said that Nestle could team up with the Bettencourt family and buy the Clichy, France-based company, since both already operate two joint ventures: Galderma, a maker of dermatology drugs, and Inneov, which makes nutritional supplements.

But the more likely scenario would be Nestle exiting L'Oreal since the Swiss food giant's recent shift of focus towards health, wellness and nutrition.

It is for this reason it sold its majority stake in eye care company Alcon in 2008.