L’Oréal to Buy Back 8% of Its Shares From Nestlé

PARIS â€" L’Oréal, the world’s largest maker of cosmetics, will pay about $8.2 billion to buy back 8 percent of its shares from Nestlé, the companies said Tuesday, in a complex transaction that marks a major step toward unwinding a long alliance between the French cosmetics maker and the Swiss food giant.

Nestlé, based in Vevey, Switzerland, has held almost 30 percent of L’Oréal since 1974, acting together with the Bettencourt-Meyers family, which founded L’Oréal, to control the company. Its brands include Lancôme, the Body Shop and Vichy. The family sold the stake to the Swiss company amid fears that L’Oréal might otherwise be nationalized by the French state.

Thedeal was not unexpected, as the companies had been facing the expiration in April of an agreement requiring the parties to first offer the other any stake they intended to sell.

Though Nestlé has profited handsomely on its investment, the Swiss company has in recent years been focusing on expanding its health and nutrition businesses and dropping what it considers to be noncore activities. Selling the L’Oréal stake also frees up a significant amount of capital in case Nestlé identifies acquisition targets. Nestlé said on Tuesday it would use part of the proceeds to carry out a share buyback.

The companies said their respective boards agreed unanimously on Monday that L’Oréal would buy back 48.5 million of its own shares from Nestlé, an amount equivalent to 8 percent of! L’Oréal’s share capital, reducing the Swiss company’s stake to less than a quarter of L’Oréal’s stock.

Peter Brabeck-Letmathe, Nestlé's chairman, told a news conference at L’Oréal’s Paris headquarters that Nestlé would “continue to support the development of L’Oréal as in the past 40 years” and that it would continue its cooperation with the Bettencourt-Meyers family.

The deal, on which Lazard and BNP Paribas are advising L’Oréal and Rothschilds is advising Nestlé, is being financed in two parts. First, Nestlé will pay 21.2 million in L’Oréal shares for the French company’s 50 percent stake in Galderma, their Swiss dermatology pharmaceuticals joint venture, for an equity value of €2.6 billion, or roughly $3.6 billion. The Swiss company will turn te wholly owned company into a new business, Nestlé Skin Health.

Second, L’Oréal will pay €3.4 billion in cash for another 27.3 million of its shares held by Nestlé. All of those shares will be canceled, and L’Oréal said that would result in a 5 percent positive impact on its recurring earnings on a full-year basis.

Jean-Paul Agon, L’Oréal’s chairman and chief executive, said the deal “represents a very positive strategic move for L’Oréal, its employees and its shareholders.”

L’Oréal will finance the second part purely through cash on hand and by issuing short-term debt, answering a key question among investors, who had wondered whether the com! pany woul! d have to sell part of its stake in Sanofi, a French drug maker, in which it owns a 9 percent holding.

The companies said Nestlé's share of the cosmetics maker would drop to 23.29 percent from 29.4 percent, and that the Bettencourt-Meyers family’s ownership would rise to 33.31 percent from 30.6 percent. Nestlé's representation on the 14-member board will drop to two seats from three.

L’Oréal traces its start to 1909, when a chemist named Eugène Schueller founded a company to supply Paris hairdressers with hair dyes. The company has a market value of more than €78 billion and employs more than 77,000 people worldwide.

Liliane Bettencourt, Mr. Schueller’s daughter,inherited the company fortune on the death of her father, and is today the richest woman in Europe, with a family fortune estimated by Forbes at about $30 billion.

Her father’s support of pre-World War II French fascists, and her marriage to André Bettencourt, a French politician with links to far-right groups, led her to fear that her L’Oréal stake would be seized if the French left won election. In 1974, she agreed to trade a 30 percent stake to Nestlé for a small share in the Swiss company, on the assumption that it would be more difficult for the state to intervene if a significant foreign investor were involved.