L’Oreal SA (OR) Chief Executive Officer Jean-Paul Agon said buying Nestle SA’s stake of about 29 percent in the world’s largest cosmetics maker would make sense, sending shares in both companies higher.
“If the opportunity presents itself, we have very significant financial resources that would make it possible,” Agon said in an interview with Le Monde. “It would be a good operation.” Agon’s reported comments were confirmed to Bloomberg by L’Oreal spokeswoman Stephanie Carson-Parker.
L’Oreal and Nestle said last year they are keeping all options open ahead of April’s expiry of restrictions on Nestle’s stake imposed by a shareholder agreement with the Bettencourt family. Nestle can already sell its shares, though it has to offer them first to the family, which owns 30.6 percent of L’Oreal. That preemption right expires April 29, along with a provision forbidding alliances with third parties.
Buying Nestle’s stake would add to earnings, Agon told Le Monde. L’Oreal could cancel the shares and the value of L’Oreal’s stock would increase, he said.
The question of whether to stick, twist or fold on L’Oreal has taxed Vevey, Switzerland-based Nestle since 2000, when Chairman Peter Brabeck-Letmathe was CEO and proposed a stronger push into cosmetics. The board deemed that too ambitious and Brabeck decided instead to focus on nutrition and health, according to the company’s official history.
“We believe that Nestle will sell its stake,” Exane BNP Paribas analyst Jeff Stent said in a Jan. 14 note. “Perhaps Nestle does have a need for the cash. While Nestle (NESN) comments that it is focused on small bolt-on acquisitions, its real acquisition intentions could be more significant.”
Nestle’s board is addressing the future of its L’Oreal stake “with great attention in the framework of the group’s global nutrition, health and wellness strategy,” spokesman Robin Tickle said via e-mail. “Nestle will continue to take a long-term strategic view in shareholders’ best interest, and will, when appropriate, make its decisions in a way that is most conducive to the long term success of the company.”
Most analysts say Nestle will probably sell or keep the position since the holding today generates about a 10th of its net income. Nestle bought a stake in L’Oreal in 1974 from the Bettencourt family, the billionaire heirs of the cosmetics maker’s founder.
Still in effect after April will be an agreement barring Nestle from acquiring more L’Oreal shares until six months after the death of the daughter of L’Oreal founder Eugene Schueller and family matriarch, Liliane Bettencourt, who turns 92 in October. A court in 2011 put Bettencourt under the care of her family, ruling she was no longer mentally fit to manage her affairs.
The Bettencourt family remains committed to L’Oreal and has no plans to sell its stake, the family said in August. Agon has said he doesn’t see any synergies with Nestle.
L’Oreal could use its stake of about 9 percent in drugmaker Sanofi to help fund acquisitions, Agon said in August. Sanofi would consider buying back the holding if it were to become available, CEO Chris Viehbacher said in October.
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