Nestlé has entered exclusive talks to sell its skincare business to a group led by EQT Partners for 10.2 billion Swiss francs (€9.02 billion) in what would be one of the biggest private equity deals this year.
The discussions with the consortium, led by EQT and the Abu Dhabi Investment Authority, are moving ahead as the world's largest food company wraps up a hotly contested sale process for its moisturisers, acne treatments and wrinkle fillers. The unit had 2018 revenue of 2.8 billion francs.
Selling dermatological brands would dismantle a business that chief executive Mark Schneider's predecessor, chairman Paul Bulcke, touted as a promising new avenue of growth when he led the company. Mr Schneider has been focusing on products such as coffee, water and pet food as Nestlé works to spur sales and revamp growth.
Nestlé said the deal is subject to employee consultations and is expected to close in the second half, at which time the food company will give details on what it plans to do with the proceeds.
The skincare unit has been a weak spot, with activist investor Dan Loeb at hedge fund Third Point saying that Nestlé's foray into the business appeared unrelated to its core portfolio and should be unwound.
Still, the unit attracted interest from at least a dozen potential bidders during the auction, according to people familiar with the matter.
EQT, the Nordic region's biggest private equity firm, is exploring a potential initial public offering. It has raised more than €60 billion since it was started about 25 years ago. Investor AB, founded by the wealthy Wallenberg family, is the firm's anchor investor with an ownership of about 10 per cent in its most recent funds, according to the company's website.
In addition to interest from private-equity and sovereign wealth fund bidders, the unit attracted companies focused on health products. Colgate-Palmolive and Unilever had made offers for the consumer arm, which includes over-the-counter products such as Cetaphil and Proactiv, while PAI Partners and Baring Private Equity made a joint bid for the medical treatments business known as Galderma, people familiar with the process had said.
Bidders for the entire business included an individual offer from KKR and Co, the people had said. A group that included Advent International, Cinven and Singapore's GIC Pte. was also interested in the entire unit, people familiar with the matter said previously.
The skincare business was built out of a joint venture that Nestlé formed with L'Oréal in 1981. Nestlé paid the French cosmetics maker more than $3 billion to buy the business out in 2014 and in the following months paid a further $1.4 billion to acquire a portfolio of skin-care drugs from Valeant Pharmaceuticals.
Nestlé said earlier this year that it’s accelerating a program to buy back SFr20 billion worth of shares to complete it six months early. Mr Schneider had told reporters at the time that the company isn’t excluding further deals. However, chief financial officer Francois-Xavier Roger has repeatedly said it’s a seller’s market.
"I don't envisage any major acquisition by Nestlé this year," wrote Jon Cox, an analyst at Kepler Cheuvreux, who said this put Nestlé in a position to start another 20 billion-franc share buyback once the current program expires. "I wouldn't be surprised to see bolt on deals in areas it has highlighted for attention, namely coffee, water, pet care, nutrition and consumer health."
Another piece of Bulcke’s legacy was undone with last week’s announcement that Nestlé would halt direct-store delivery of frozen pizza and ice cream in the US, which it had started after acquiring DiGiorno and other brands from Kraft in 2010. – Bloomberg