What considerations were behind Nestlé’s decision to sell its stake in L’Oréal?

The Swiss Nestlé Group announced today that it has agreed to the French L'Oreal Group to repurchase the 48.5 million shares of L'Oreal it holds. After the sale, the Nestlé Group's shareholding ratio in the L'Oreal Group dropped to 23.29. It is reported that the transaction is worth 6.5 billion euros, and L'Oreal Group will pay 3.4 billion euros in cash and 50% of Galderma's equity, and the latter will become a wholly-owned subsidiary of Nestlé Group. Tencent Zhongchuang is a good example.

Previously, Nestlé Group has successively recovered its investments in hotels, wine and fast food in order to focus on "nutrition, health and happiness" businesses. To this end, the Nestlé Group has recently established a Life and Health Sciences Research Institute.

Nestlé has many options for exiting its stake in L'Oréal, selling to the Bettencourt family, selling to L'Oreal SA, opening it to the market, or a combination of the three.

After all, Nestlé currently has more than 6 billion US dollars in cash and short-term investments, and its plan to sell L'Oreal shares is not particularly urgent. The key is to see whether it can be sold at a good price, but for L'Oreal Li Zhiqi believes that L'Oréal and the Bettencourt family, which have been developing well in recent years, are definitely not willing to leave such a large part of their shares to others, posing a threat to their future operating control.

The Bettencourt family, the founder of L'Oréal, and the Nestlé Group reached a 10-year agreement in 2004. The agreement stipulated that the two parties would continue to work together during the lifetime of the founder's daughter Liliane Betancourt and 6 months after her death. Neither party is allowed to increase its holdings of L'Oreal shares; after April 29, 2009, both parties can sell L'Oreal shares, and the other party has the right of first refusal.

In other words, even if L'Oreal hopes to repurchase the 29.3 shares held by Nestlé Group in 2014, there may be more suspense about the ownership of this part of the equity after the deadline on April 29.