Nestle to Cut Debt After Alcon Sale, Keep AA Rating

Nestle SA, the world’s largest food company, said it will “substantially” reduce net debt after completing the sale of 52 percent of eye care specialist Alcon Inc. to Novartis AG for $28.3 billion.

The maker of Nespresso coffee and Lean Cuisine meals will reduce debt from 29.6 billion Swiss francs ($29 billion) at the end of June and aim to maintain its AA rating, Vevey, Switzerland-based Nestle said in a statement on its website today. Standard & Poor’s has rated Nestle’s debt AA since August 2007.

Nestle sold Alcon in three steps, including a 2002 initial public offering, getting a return of $41 billion compared with its 1977 investment of $280 million, according to the statement.

The Swiss company in June confirmed a plan to buy back 10 billion francs of its own shares through mid-2011 after a previous 25 billion-franc buyback plan ended. The company prefers to use its cash to invest in its own business or make acquisitions rather than buying back shares, Chief Financial Officer Jim Singh said June 22.

“It’s likely that Nestle will announce an additional buyback and/or bolt-on acquisitions in the short term,” Claudia Lenz, an analyst at Bank Vontobel in Zurich, wrote in a note to investors. She rates the stock “buy.”

Focus on Food

Mergers and acquisitions are a “future growth enabler” for Nestle, Singh said Aug. 11. “Our focus is on food and beverage, particularly in nutrition, health and wellness.”

Nestle, which owns about 30 percent of French cosmetics company L’Oreal SA, hasn’t decided what it will do with the stake, Handelszeitung reported yesterday, citing Chairman Peter Brabeck-Letmathe. The stake is positive for shareholders of both companies, the Swiss newspaper cited him as saying.

“For us this is a non-event,” L’Oreal Chief Executive Officer Jean-Paul Agon said today of Brabeck’s comments. “I haven’t seen anything new or groundbreaking,” he said at a results presentation in Paris.

Nestle has an agreement with the Bettencourt family, which owns 31 percent of L’Oreal, to not raise its L’Oreal stake until six months after the death of Liliane Bettencourt, who is 87.

Nestle’s purchases this year include a frozen pizza business from Kraft Foods Inc., U.K. clinical-nutrition product maker Vitaflo, and the maker of Mivina instant noodles in Ukraine. Nestle also formed a joint venture with Dashan, the biggest bottled-water producer in China’s Yunnan province.

To contact the reporter on this story: Tom Mulier in Geneva at tmulier@bloomberg.net.

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