L’oréal no closer to answering nestlé share stake questions 14-02-12
L’Oréal no closer to answering
Nestlé share stake questions
By Adam Thomson in Paris
Connected family: Liliane Bettencourt, center, leaves the funeral of Claude Pompidou, the ex-French president’s widow, in 2007 with
husband André Bettencourt, left, and daughter Françoise
L’Oréal sought on Tuesday to answer the most important question that has played on the minds of
investors big and small for the past year: what was to become of Nestlé’s 29.4 per cent stake in the
French cosmetics producer?
The speculation surrounding the Swiss food group’s plans had turned into a whirlwind in recent days
– fuelled by the fact that from April Nestlé would be free to sell its stake to a third party without first
offering it to L’Oréal.
But when the answer finally came – Nestlé said that it would sell 8 per cent of L’Oréal’s share capital
back to the French company – it left many investors with even more doubts than before. L’Oréal’s
share price, which had climbed in the build-up, promptly fell and ended the day 3.3 per cent lower.
Jean-Paul Agon, the French cosmetic group’s chairman and chief executive officer, told the Financial
Times that the “strategic transaction”, as the two companies had called it, was the final word. “It’s
done, it’s over,” he said. “This strategic operation is great for all parties.”
But others are not so sure. In spite of comments to the contrary by Peter Brabeck, Nestlé’s chairman,
analysts point out that there is nothing to stop the Swiss food group from selling more of its L’Oréal
holding to a third party come April.
Colette Neuville, who heads France’s Minority Shareholders’ Defence Association (Adam), said:
“Nestlé says it will remain an investor, but until when?”
Other doubts hinge on what L’Oréal intends to do with all the cash it generates. Tuesday’s deal will
leave the cosmetics group, which last year had revenues of €23bn and operating profit of €3.9bn, with
only about €700m in debt, and the prospect of being cash positive again within a year.
“What are they going to do with that money?” asked Andrew Wood at Bernstein Research. “There does
not seem to be much out there for L’Oréal to buy.”