Nestlé opens door to L'Oreal stake sale as growth slumps

The Nespresso owner said it won’t increase its 23% investment in the French cosmetics maker and will let a shareholder pact with the Bettencourt family lapse. Nestlé dropped as much as 2.8% in early Zurich trading, while L’Oreal rose as much as 0.7% in Paris.

“We remain committed to the company that has given us very good returns over the years,” Nestlé said, adding it wants to keep all options open regarding L’Oreal while maintaining a constructive relations with the Bettencourts. The French company’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% in 2017 on an organic basis, below analyst expectations. Schneider is aiming to lift that to as much as 4% this year. Speaking on Bloomberg TV, he said he’s “somewhat” optimistic for pricing and volume growth for 2018 and beyond.

Since taking over about a year ago, the CEO has stepped up merger-and-acquisition activity, buying Canadian dietary supplements maker Atrium Innovations for $2.3bn 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,” Schneider told reporters in Vevey, Switzerland.

Gerber insurance

Schneider also accelerated Nestlé’s share buyback program in response to activist Dan Loeb taking a $3.5bn position in the company. On Thursday, Nestlé said it may sell a life-insurance business that it acquired when it bought the Gerber baby food brand in 2007. The unit had revenue of $906m last year.

• READ: Nestlé gives an inch on share buybacks but Loeb wants more
  

Loeb has been pressuring Nestlé to consider selling its stake in L’Oreal, 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’Oreal holds a stake.

L’Oreal said last week that it’s 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 the cosmetics maker until March 21 - six months after the death of L’Oreal matriarch Liliane Bettencourt.

A sale of the stake is not imminent, according to Robert Waldschmidt, an analyst at Liberum. “A spin-off of the stake to shareholders is as likely as an outright sale without the precursor of large-scale M&A,” he wrote.

Schneider, the first outsider to run Nestlé in almost a century, beat his goal of improving the underlying trading operating margin by at least 0.2 percentage points, excluding currency shifts. The margin rose 0.5 percentage points.