Nestlé and L’Oréal confirmed the rumors about the evolution of their capital ties. Actually, L’Oréal will buy 48.5 million of its own shares (8% of its share capital) from Nestlé, therefore partially divesting from the French group.

Jean-Paul Agon, Chairman and Chief Executive Officer of L'Oréal - ©...

Jean-Paul Agon, Chairman and Chief Executive Officer of L’Oréal - © L’Oréal

In order to finance this buyback, L’Oréal sells to Nestlé 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). The remainder, corresponding to 27.3 million L’Oréal shares held by Nestlé, will be paid in cash for an amount of 3.4 billion euros.

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%. The number of Nestlé representatives on L’Oréal’s Board of Directors will be adjusted from 3 to 2 Directors.

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.

"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 SA. Galderma will be the foundation of this entity which will be run by Galderma’s management,” said Peter Brabeck-Letmathe, Chairman of Nestlé.

The transaction is expected to close before the end of the first semester of 2014.