Nestlé opens door for possible sale of L’Oréal stake

Firm said it will not increase 23% stake in French cosmetics maker L’Oréal

Nestlé opened the door to a possible sale of its L'Oréal stake in a move that would give chief executive Mark Schneider ammunition to sharpen the Swiss giant's portfolio after the weakest sales growth in more than 20 years.

The Nespresso owner said it won’t increase its 23 per cent investment in the French cosmetics maker and wants to keep all other options open. Nestlé said it won’t renew a shareholder pact with the Bettencourt family, which also owns a stake.

“We remain committed to the company that has given us very good returns over the years,” Nestlé said. L’Oréal’s sales growth is stronger than Nestlé’s, providing a helpful tailwind amid bleak prospects for mass-market food and beverage brands.

Nestlé’s update on the stake came as the company said revenue rose 2.4 per cent in 2017 on an organic basis, below analysts expectations for a 2.7 per cent increase. Mr Schneider is aiming for 2 per cent to 4 per cent growth this year.

Ailing chocolate business

Since taking over about a year ago, the chief executive has stepped up M&A activity, buying Canadian dietary supplements maker Atrium Innovations for $2.3 billion and jettisoning Nestlé’s ailing US chocolate business. Nestlé said it plans to continue “active portfolio management” in a disciplined manner.

“The sweet spot is in small to mid-sized deals, but we don’t want to rule out anything,” Mr Schneider told reporters.

Mr Schneider also accelerated Nestlé's share buyback program in response to activist Dan Loeb taking a $3.5 billion position in the company.

Consider selling

Mr Loeb has been pressuring Nestlé to consider selling its stake in L’Oréal, an investment that dates back to 1974. Such a move could prompt a broader realignment of shareholdings in some of Europe’s biggest companies, including French drugmaker Sanofi, in which L’Oréal holds a stake.

L’Oreal said last week that it was ready to buy out Nestlé’s holding and has the resources to do it. Under the shareholder agreement, neither the Swiss company nor the Bettencourt family are permitted to increase their stakes in L’Oréal until March 21st – six months after the death of matriarch Liliane Bettencourt. – Bloomberg