The deal means that Nestlé’s stake in L'Oréal has been cut to 23.29% from 29.4% while the Bettencourt family's stake in L'Oréal will increase from 30.6% to 33.31%.
Swiss foods giant Nestlé has been looking to reduce its $32bn stake in the world’s largest cosmetics maker for some time. But talks were often on and off because of the complex relationship between Nestlé and the Bettencourt family behind L’Oreal.
L'Oréal, the world's biggest cosmetics company, owns brands including Lancôme, Garnier and Yves Saint Laurent. Nestlé and the Bettencourt family, heirs of L'Oréal's founder, have jointly controlled L'Oréal since 1974, when the family feared nationalisation from the French government.
Each party held about 30% of the company, and the partnership was last renegotiated 10 years ago when both sides agreed that neither could raise their stake during the lifetime of Liliane Bettencourt, the 91-year-old matriarch, or for six months after her death. They also committed to giving the other party the first right of refusal if they wanted to sell their shares – a pledge which expires at the end of April.
The Bettencourt clan is determined to hold on to its stake. According to Bloomberg, Nestlé wants to scale back its investment because cosmetics don’t fit its long-term nutrition and health strategy. The investment also ties up capital and has already generated sizable returns for the company (around 15% a year on average).
However, Nestle chairman Peter Brabeck said the sale is ‘not a first step towards an exit.’
L’Oréal’s buyback will be partly funded through the sale by L' Oréal to Nestlé of its 50% stake in Swiss pharmaceuticals company Galderma - a 50-50 joint venture between L’Oréal and Nestlé - for €3.1bn.
L’Oréal shares rose 4.5% at the start of trading on Tuesday.