Nestle shares flirt with record on 8.9bn euro L'Oreal sale

ZURICH: Nestle shares neared a record high in Zurich on Wednesday after the Swiss food giant said it would raise about 8.9 billion euros ($10.2 billion) by selling part of its stake in L'Oreal.

Shares in the owner of Nespresso coffee pods and Maggi broths rose as much as 1.97 percent to what would be an all-time closing high of 124.34 Swiss francs in morning trade following the announcement, which came after markets closed on Tuesday.

Nestle said it would reduce its stake in the French cosmetics giant to 20.1 percent from 23.3 percent, and increase share buybacks with the proceeds.

While the move was not "a major surprise" and was "fully aligned with strategic comments made by the company", it was "a positive signal", said Baader Helvea analyst Andreas von Arx.

The current buyback programme, during which Nestle has already bought back 12.7 billion Swiss francs (11.5 billion euros) of its shares, will be replaced by a new programme in which it plans to purchase 20 billion francs of shares by 2024, 10 billion in 2022 alone.

Nestle bought a stake in L'Oreal in 1974 at the request of the Bettencourt family, who feared a possible nationalisation if the left came to power in France.

The shareholder agreement that bound them since then -- and which was also an impediment to any hostile takeover -- had been regularly renewed.

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But in 2018, six months after the death of Liliane Bettencourt and as activist fund Third Point was pressing Nestle to sell its stake and reinvest it in projects to fuel growth, the two groups agreed not to renew their pact.

Since 1974, this stake has generated an annualised return of 11 percent for Nestle, excluding dividends, said Jean-Philippe Bertschy, an analyst at Vontobel.

Still, "the proposed transaction is smart," he wrote in a market commentary, pointing to opportunities it opens up for Nestle in terms of takeovers and boosting returns for its shareholders.

Martin Deboo, an analyst at Jefferies, described the move as a "good business for both" companies, but questioned whether it signalled "the start of an amicable divorce", which would see Nestle gradually divest from L'Oreal over the next few years.