Nestlé and L'Oréal announced their respective boards of directors, in meetings held on February 10, 2014, approved by unanimous decision of their voting members 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 3.1 billion euros (2.6 billion euros 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, in cash for an amount of 3.4 billion euros The price per L'Oréal share retained for this transaction is the average of its closing prices between Monday November 11, 2013 and Monday February 10, 2014: €124.48.
All the shares bought back by L'Oréal will be cancelled. 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 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, said, "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 center of activities in this area, through a new entity: Nestlé Skin Health SA. Galderma will be the foundation of this entity which will be run by Galderma's management. As a wholly owned subsidiary of Nestlé, Galderma will have all the required means for its development which will benefit to the company, its employees as well as all other stakeholders. Following the decrease of its stake in L'Oréal, Nestlé will continue to support the development of L'Oréal as in the past 40 years. In this context, Nestlé will continue to act in concert with the Bettencourt Meyers family and the existing agreements, adapted to the new situation, will remain in place."
Jean-Paul Agon, chairman and CEO of L'Oréal, said, "This transaction represents a very positive strategic move for L'Oréal, its employees and its shareholders. L'Oréal will focus exclusively on its cosmetics business and its ‘Beauty for all’ mission, its universalization strategy and its ambition to win one billion new consumers. L'Oréal will indeed benefit from a very significant and reinforced presence from the founding Bettencourt Meyers family, who will continue to fully support the company as it always did in the past. L'Oréal will also continue to benefit from the support of Nestlé, which has always been a loyal and constructive shareholder. Lastly, all of L'Oréal's shareholders will benefit from this transaction with an accretive impact on the company's earnings, resulting from the buyback and subsequent cancellation of L'Oréal shares held by Nestlé."