L’Oréal to buy back 8% stake from Nestle for $8.88 bn

Nestle SA today agreed to sell 8 per cent stake or 48.5 million shares in L'Oréal back to the French cosmetics giant for €6 billion ($8.88 billion).

Nestlé will sell 27.3 million L'Oreal shares for €3.4 billion in cash and sell another 21.2 million L'Oréal shares in exchange for a 50-per cent stake in Galderma, its skincare joint venture with L'Oreal. The 50-per cent stake is worth €2.6 billion.

Switzerland-based Galderma, an equal joint venture between L'Oréal and Nestlé, was created in 1981. The Lausanne, Switzerland-based company had sales of $2.2 billion last year.

The transaction will reduce Nestlé's stake in L'Oréal to 23.29 per cent from 29.4 per cent, while the stake of the billionaire heirs of L'Oréal's founder, Bettencourt Meyers, will increase from 30.6 per cent to 33.31 per cent.

The deal will also cut Nestlé's representation in L'Oréal's board from three to two.

L'Oréal intends to cancel all the shares it buys back from Nestle, which may raise earnings per share by 15 to 20 per cent for the remaining shareholders, analysts say.

The transaction will be accretive by more than 5 per cent on L'Oréal's recurring earnings per share on a full year basis. The buyback will be exclusively financed with L'Oréal's available cash and through the issuance of commercial paper.

Peter Brabeck-Letmathe, chairman of Nestlé, said, "With this proposed acquisition of 50% of Galderma, Nestlé will pursue its strategic development in Nutrition, Health, and Wellness, by expanding its activities to medical skin treatments.

Nestlé said that it will create a new subsidiary called Nestlé Skin Health SA. Galderma's will be run by Galderma's existing management.

Jean-Paul Agon, chairman and CEO of L'Oréal, said, "This transaction represents a very positive strategic move for L'Oréal, its employees and its shareholders.

''All of L'Oréal's shareholders will benefit from this transaction with an accretive impact on the company's earnings, resulting from the buyback and subsequent cancellation of L'Oréal shares held by Nestlé," he added.

In 1974, fearing that the then presidential candidate for France's Socialist Party François Mitterrand might nationalise L'Oréal if he came to power, the Bettencourt family invited Nestlé to take an indirect stake in the company.

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

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

After that date, both will be free to sell thei shares to a third party.

Nestle had earlier said that it would examine whether L'Oréal fits into its long-term 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 Sanofi worth around €9 billion.

L'Oréal said that it will not require selling its stake held in French pharmaceutical giant Sanofi.

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