Qatar v. Ecuador to kick off FIFA World Cup 2022™ on 20 NovemberRead more Webb Fontaine Announces Launch of Niger National Single Window (NNSW) to Bolster TradeRead more Ethiopia: Loan from United Nations Fund Allows Food and Agriculture Organization (FAO) to Scale Up Fertilizers for Farmers in TigrayRead more How Choosing the Right Printer Helps Small Businesses and Content Creators to Save Time, Maximise Productivity and Achieve GrowthRead more The United States Contributes USD $223 Million to Help World Food Programme (WFP) Save Lives and Stave Off Severe Hunger in South SudanRead more Eritrea: World Breastfeeding WeekRead more Eritrean community festival in Scandinavian countriesRead more IOM: Uptick in Migrants Heading Home as World Rebounds from COVID-19Read more Network International & Infobip to offer WhatsApp for Business Banking Services to Financial Institution Clients across AfricaRead more Ambassador Jacobson Visits Gondar in the Amhara Region to Show Continued U.S. Support for the Humanitarian and Development Needs of EthiopiansRead more

Nestle shares flirt with record on 8.9 bn euro L’Oreal sale

show caption
The decades-old pact between Nestle and L'Oreal may be slowly winding down./AFP
Print Friendly and PDF

Dec 09, 2021 - 09:03 AM

ZURICH, SWITZERLAND — Nestle shares neared a record high in Zurich on Wednesday after the Swiss food giant said it would raise about 8.9 billion euros ($10.2 billion) by selling part of its stake in L’Oreal.

Shares in the owner of Nespresso coffee pods and Maggi broths rose as much as 1.97 percent to what would be an all-time closing high of 124.34 Swiss francs in morning trade following the announcement, which came after markets closed on Tuesday.

Nestle said it would reduce its stake in the French cosmetics giant to 20.1 percent from 23.3 percent, and increase share buybacks with the proceeds.

While the move was not “a major surprise” and was “fully aligned with strategic comments made by the company”, it was “a positive signal”, said Baader Helvea analyst Andreas von Arx.

The current buyback programme, during which Nestle has already bought back 12.7 billion Swiss francs (11.5 billion euros) of its shares, will be replaced by a new programme in which it plans to purchase 20 billion francs of shares by 2024, 10 billion in 2022 alone.

Nestle bought a stake in L’Oreal in 1974 at the request of the Bettencourt family, who feared a possible nationalisation if the left came to power in France.

The shareholder agreement that bound them since then — and which was also an impediment to any hostile takeover — had been regularly renewed.

But in 2018, six months after the death of Liliane Bettencourt and as activist fund Third Point was pressing Nestle to sell its stake and reinvest it in projects to fuel growth, the two groups agreed not to renew their pact.

Since 1974, this stake has generated an annualised return of 11 percent for Nestle, excluding dividends, said Jean-Philippe Bertschy, an analyst at Vontobel.

Still, “the proposed transaction is smart,” he wrote in a market commentary, pointing to opportunities it opens up for Nestle in terms of takeovers and boosting returns for its shareholders.

Martin Deboo, an analyst at Jefferies, described the move as a “good business for both” companies, but questioned whether it signalled “the start of an amicable divorce”, which would see Nestle gradually divest from L’Oreal over the next few years.

The shares hit an intraday high of 124.83 francs on November 12.

MAORANDCITIES.COM uses both Facebook and Disqus comment systems to make it easier for you to contribute. We encourage all readers to share their views on our articles and blog posts. All comments should be relevant to the topic. By posting, you agree to our Privacy Policy. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, name-calling, foul language or other inappropriate behavior. Please keep your comments relevant and respectful. By leaving the ‘Post to Facebook’ box selected – when using Facebook comment system – your comment will be published to your Facebook profile in addition to the space below. If you encounter a comment that is abusive, click the “X” in the upper right corner of the Facebook comment box to report spam or abuse. You can also email us.