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NESN - Nestle SA News Story

CHF121.94 1.1  0.9%

Last Trade - 17/01/22

Consumer Defensives
Large Cap
Market Cap £266.56bn
Enterprise Value £298.04bn
Revenue £68.13bn
Position in Universe 1st / 1057

UPDATE 1-Nestle sale of L'Oreal shares pleases investors on both sides

Wed 8th December, 2021 11:02am
(Adds detail, source, Nestle spokesman, analysts' comment)
    By Gwénaëlle Barzic and Silvia Aloisi
    PARIS, Dec 8 (Reuters) - Shares in Nestle and L'Oreal rose
on Wednesday after the Swiss food group trimmed its stake in the
French beauty giant, a deal that pleases investors on both sides
while keeping ties between the two companies broadly intact - at
least for now.
    The Nescafe maker has been a major shareholder in the owner
of brands like Lancome since 1974, when L'Oreal heiress Liliane
Bettencourt entrusted nearly half her stake to Nestle for fear
it would be nationalised if Socialists came to power. 
    The presence of Nestle, which is cutting its stake to just
over 20% from 23% by selling shares worth about $10 billion,
alongside the L'Oreal founding family helped insulate the French
group from unsolicited takeover bids.   
    For Nestle, it has proved a great investment. L'Oreal shares
yielded a total return of 11% on an annualised basis since then,
excluding dividends, according to analysts at Vontobel. 
    They hit a record high of 433.65 euros on Wednesday, having
more than trebled in value since Nestle first sold an 8% holding
in 2014.
    The stake Nestle is selling will be bought back by L'Oreal,
increasing the Bettencourt Meyers family holding to 34.7% from
around 33%.*:nL4N2SS3X8 
     "Good business for both," said broker Jefferies. "It
reduces Nestle's exposure to L'Oreal, which at about 16% of its
market cap pre-transaction was becoming troublingly high. It
makes L'Oreal's balance sheet somewhat more efficient, while
keeping ownership 'in the family'."   
    Shares in both companies opened more than 1% higher on
    Nestle's holding in L'Oreal has been the subject of intense
scrutiny over the years as Chief Executive Mark Schneider
pivoted the company towards nutrition and wellness, and activist
investor Third Point in 2017 urged the Swiss group to sell out.
    According to a source with knowledge of the negotiations,
Tuesday's announcement was the result of two months of talks
that involved the chairmen of both companies. Nestle was keen to
maintain a holding above 20%, allowing it to consolidate the
investment on accounts.
    The source said Nestle was unlikely to sell more of its
stake for now, unless it decided to go for a big acquisition. 
    "When your financial investment reaches all-time highs, it
is not surprising that you monetise some of it, especially when
there is no strategic partnership and when it can continue to
fuel your equity story of strong cash returns," analysts at
Bernstein said. 
    Nestle, which retains two members on L'Oreal's board, "can
keep doing this several times in the next decade," they said.
    A spokesman for Nestle said the stake sale left the company
in a "best of both worlds" situation.
    "On the one hand, we monetise around 9.3 billion Swiss
francs (8.9 billion euros). On the other hand, it keeps us
involved with a very successful company," he said.  
    Centerview acted as lead adviser to L'Oreal while Credit
Suisse advised Nestle.
    ($1 = 0.8859 euros)

 (Additional reporting by Mike Shields in Zurich, Mimosa Spencer
and Dominique Vidalon in Paris)
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