Questions over Nestle’s investment in L’Oreal, worth 23 billion euros ($27.6 billion) before Friday’s rise, have intensified after activist shareholder Third Point disclosed a stake in Nestle in June and urged the Swiss group to sell down the stake, which represents more than 10 percent of its own market value.
Third Point said it could be divested in a tax-efficient way through an exchange offer whereby Nestle would give shareholders L’Oreal shares for their Nestle shares.
That would enhance Nestle’s return on equity and increase its share price in the long run, Third Point said, as earnings improve over a reduced share count.
Third Point declined to comment on Friday.
L’Oreal is seen by analysts as being a willing and able buyer of Nestle ‘s stake, and could use its 9 percent holding in Sanofi, worth about 9.5 billion euros, to fund it. Sanofi shares were up 1 percent.
Investec analysts last month estimated that L’Oreal could boost its earnings per share by 10 percent if it bought back the stake.
In the past, under previous Nestle managers, there had been speculation that Nestle might try to acquire L’Oreal outright.
That view has become much less common after Nestle reduced its stake in 2014 and loosened the companies’ ties by taking over the Galderma dermatology joint venture they shared.
“We think a disposal in the medium/long-term is more likely than a takeover, given the diverging strategic paths of the two companies over the last decade,” said analysts at UBS.
Nestle , maker of KitKat bars and Perrier water, has been pivoting toward nutrition and health, while L’Oreal l is more focused on beauty products.
Nestle’s new chief executive Mark Schneider, who began his role at the turn of the year, will lay out his strategy next week at an investor meeting in London.
