Nestlé plans to spin off or sell its skin health business, in a move that could give the world’s largest food and drinks company a further reason to dispose of its €26bn stake in French cosmetic group L’Oréal.
In the latest streamlining measure by Mark Schneider, chief executive, Nestlé on Thursday said it had decided the future of Nestlé Skin Health, which analysts said could be worth as much as SFr7bn ($7bn), laid “increasingly outside the group’s strategic scope”.
The division had sales of SFr2.7bn last year and makes prescription items, anti-wrinkle creams and other consumer healthcare products. Nestlé said it would “explore strategic options” for the business, which could include a sale, spin-off or even a stock market listing.
Possible buyers could include consumer or pharmaceutical groups. Its review was expected to be completed by mid-2019, Nestlé said.
The skin unit was formed from Galderma, a Swiss dermatology group that Nestlé had previously operated jointly with L’Oréal. It took full control in 2014 in exchange for €2.6bn of its shares in the French cosmetics company.
At the time, Nestlé said it was investing in a fast-growing “holistic health” market. But the move into skincare puzzled investors, and the unit subsequently became a drag on the group’s sales growth and profit margins, forcing a sweeping restructuring.
Last year, Mr Schneider — who is overhauling Nestlé’s strategy to boost sales growth and profitability — complained at an investor conference that the division had overspent and failed to react fast enough to the loss of patents on prescription products.
Nestlé said that the planned sale or spin off would “sharpen its focus” on food, drinks and “nutritional health products”. The Swiss group’s biggest brands include KitKat chocolate bars, Perrier bottled water and Purina pet food.
The decision to abandon the skin health business reduces still further the strategic case for Nestlé retaining its 23 per cent stake in L’Oréal. The stake was acquired originally in 1974 when L’Oréal heiress Liliane Bettencourt feared nationalisation by France.
US investor Daniel Loeb, whose Third Point activist hedge fund a year ago revealed a 1.25 per cent stake in Nestlé, has urged the sale of the L’Oréal shares. But analysts expect Nestlé only to sell when market conditions are suitable and it has decided on the use for the proceeds.
The sale of Nestlé Skin Health meant Nestlé would actually have less need to sell L’Oréal shares for acquisitions, said Jon Cox at Kepler Cheuvreux. “I presume that they will use [L’Oréal] as a joker if a big transaction comes up,” he added.
Despite withdrawing from the skin health sector, Nestlé said it remained committed to nutritional “health science” business. Last year, it spent $2.3bn buying Atrium Innovations, a Canadian nutritional products company, from private equity group Permira.
Since taking over as chief executive at the start of 2017, Mr Schneider has revealed a series of acquisitions and disposals, especially in the increasingly competitive global coffee market. At the start of this year, Nestlé sold its US confectionery business. This week, it announced the sale of its Gerber life insurance company to Western & Southern Financial Group for $1.55bn in cash.
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