L’Oreal buys back 8% stock from Nestle in a 8.2-billion-dollar deal

LOreal SA, which is currently the largest cosmetics maker in the world, made an official statement announcing that it has reached an agreement with Nestle SA to buy back 8% of its stock. The deal is estimated to 6 billion Euro (8.2 billion dollars) and is the first shares sale by Nestle after 40 years of ownership.

3.4 billion Euro in cash will be paid by LOreal for 27.3 million shares. The company revealed that its half of the Galderma skincare joint venture will be exchanged for a further 21.2 million shares.

LOreals earnings per share are expected to be increased by the buyback, while Nestle can become more focused on nutrition and health products. Peter Brabeck-Letmathe, who is the Chairman of Nestle, said in a statement today that the company considers its remaining stake to be “strategic”, which is the reason why it will be held in the long-term. Mr. Brabeck-Letmathe also explained that the transaction does not represent a detachment from LOreal.

James Edwardes Jones, who is one of the analysts working for RBC Capital Markets said for Bloomberg: “The eventual disposal of Nestle’s entire holding in L’Oreal is the logical conclusion. That said, we wonder if there will be a slight feeling of anticlimax on the part of investors given that it looks as if the disposal will be done piecemeal and there is no clarity on the end game.”

LOreal SA explained that the transaction is expected to increase its earnings per share by a recurring 5% on an annual basis. As reported by Bloomberg, the company announced that the buyback will be financed exclusively with cash and issuance of commercial paper and will not demand the sale of its stake in Sanofi SA, which is a French pharmaceuticals manufacturer. The Chief executive Officer of LOreal – Jean-Paul Agon said at the press conference in Paris: “The agreement allows us to continue the big adventure of LOreal in an independent manner.”

Late yesterday the company shared its confidence of beating the global cosmetics market in 2014 after posting organic sales, which surpassed analysts estimates over its fourth quarter. Nestles earnings report is expected to be posted on February 13th.

LOreal SAs shares fell by 4.03% in Paris to EUR123.80 by 13:08 GMT. Nestle SA slid by 0.74% in Zurich to CHF67.05.