As Nestlé investors meet at its headquarters for a seminar today, what the company plans to do with its' L’Oreal stake will, without doubt, still be at the forefront of minds. Here, Euromonitor reveals why the sale could potentially happen...
Despite the food manufacturer previously stating that it would not decide on the future of its stake before 2014, Chairman Peter Brabeck recently implied Nestlé did not necessarily intend to renew its contract with the cosmetics giant.
Whilst some say the conglomerate ‘lacks good reason’ to sell off the cosmetics giant, others such as Euromonitor senior analyst, Oru Mohiuddin, say a potential sale could be more about the decline of emerging markets and the macro-economic state, rather than the fact that L’Oreal has been underperforming.
If Nestlé did decide to sell…
According to Mohiuddin, despite L’Oréal’s share price increasing by about a third in the last year, macro-economic challenges may mean “the trajectory will not be the same going forward, so hypothetically, L’Oreal may not be able to deliver as it has been.”
The market analyst tells CosmeticsDesign-Europe.com that a potential sale will not be something Nestle is doing by choice but rather by compulsion to improve their leverage.
And that the offer of the share will attract a lot of suitors, perhaps from the likes of existing beauty companies wanting to further invest in the industry, or another conglomerate.
Or indeed, the Euromonitor expert adds, if L’Oreal was interested in buying back their share, it would be in a very strong position to do so with a very strong cash balance and very able CEO and management who has performed well.
"If L’Oreal is able to buy it back, control of the company would be quite substantial and strategy and future growth. But, I don’t know if they’re any regulatory issues with that, they would have to get the approval of the board," she explains.
How this might affect L’Oreal….
This type of scenario Mohiuddin says would see L'Oreal gain more control of what it does, and fall further in line with its focus on innovation and market expansion.
"L’Oreal would be investing with a goal of gaining more control and for resources to be utilised properly. For them it’s not about the challenges but whether it works for their future goal," she explains.
But adds however that; "as a result future acquisitions may be affected and may also limit its opportunities to invest in resources elsewhere."
In the instance of another company snapping up the share, the expert says this would specifically affect L'Oreal in terms of how they for see the future growth prospects and come in between what they have been doing to fulfill its growth ventures.