Earnings per share up, uncertainty down. What’s not to like? L’Oréal’s €6bn deal to buy back, and cancel, 8 per cent of its shares from Nestlé is a good start on winding down the chocolate company’s 29 per cent in the cosmetics maker. There is, after all, no business case for the cross-holding, whatever the historical explanation.
The deal leaves unanswered questions for both companies, though. The first is what happens to the rest of Nestlé’s stake in L’Oréal, which is worth €16bn. At some point, Nestlé ought to sell the lot. L’Oréal would be the obvious buyer and it could finance some of the deal by selling its 9 per cent stake in Sanofi, the pharma group, which is worth about €8.6bn. It should sell this stake regardless of what is happening with Nestlé. L’Oréal no more needs a Sanofi stake than Nestlé needs a L’Oréal stake.
All very neat, but there is one drawback. Yesterday’s deal increases the Bettencourt family’s stake in L’Oréal from 30 per cent to 33 per cent. Cancelling the rest of Nestlé’s shares would increase that to more than 40 per cent, which could trigger a mandatory bid and create anxiety among other shareholders.