FDBusiness.com

The boards of Nestlé and L’Oréal have approved a strategic transaction for both companies under which L’Oréal will buy 48.5 million of its own shares (8% of its share capital) from Nestlé. This buyback will be financed partially through the disposal by L’Oréal to Nestlé of its 50% stake in Swiss dermatology pharmaceuticals company Galderma (a 50/50 joint venture between L’Oréal and Nestlé) for an enterprise value of Eur3.1 billion (Eur2.6 billion of equity value), paid by Nestlé in L’Oréal shares (21.2 million shares). For the remainder (corresponding to 27.3 million L’Oréal shares held by Nestlé) L’Oréal will pay Eur3.4 billion in cash.

Following the transaction, Nestlé’s stake in L’Oréal will be reduced from 29.4% to 23.29% of the share capital and the Bettencourt Meyers family’s stake in L’Oréal will increase from 30.6% to 33.31%. In order to reflect the change of Nestlé’s stake in L’Oréal’s governance, the number of Nestlé representatives on L’Oréal’s board of directors will be adjusted from three to two directors, and the ownership ceiling provisions of the shareholders’ agreement between Nestlé and the Bettencourt Meyers family will apply to their respective new holdings.

The transaction will be accretive by more than 5% on L’Oréal’s recurring earnings per share on a full year basis. The buyback will be exclusively financed with L’Oréal’s available cash and through the issuance of commercial paper. It will not require the disposal of Sanofi shares held by L’Oréal.

The transaction is subject to customary conditions, including the prior consultation of Galderma’s and L’Oréal’s works councils and the clearance of relevant antitrust authorities. It is expected to close before the end of the first semester of 2014.

Peter Brabeck-Letmathe, chairman of Nestlé, comments: “With this proposed acquisition of 50% of Galderma, Nestlé will pursue its strategic development in Nutrition, Health, and Wellness, by expanding its activities to medical skin treatments. In this respect, Nestlé will create a new centre of activities in this area, through a new entity: Nestlé Skin Health. Galderma will be the foundation of this entity which will be run by Galderma’s management.”

Jean-Paul Agon, chairman and chief executive of L’Oréal, says: “L’Oréal will focus exclusively on its cosmetics business and its ‘Beauty for all’ mission, its universalisation strategy and its ambition to win one billion new consumers.”