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L’Oréal chief says buying back Nestlé shares makes sense

By Andrew McDougall+

21-Jan-2014
Last updated the 21-Jan-2014 at 12:51 GMT

Agon tells Le Monde a buyback would be a 'good operation'
Agon tells Le Monde a buyback would be a 'good operation'

L’Oréal chief executive Jean-Paul Agon says it would be a ‘good operation’ if the French cosmetics maker was to buy back Swiss food giant Nestle's 29.8% stake.

There have been talks throughout the industry for some time regarding what will happen between the two companies ahead of April’s expiry of restrictions on Nestle’s stake imposed by a shareholder agreement with the Bettencourt family.

Nestle can already sell its shares, though it has to offer them first to the family, which owns 30.6% of L’Oreal.

Good option

Now, Agon tells French newspaper Le Monde that his company has the financial means to carry out such a buyback, and that it is a good option for L’Oréal to take.

“If the opportunity presents itself, we have very significant financial resources that would make it possible,” he said in the interview with Le Monde. “It would be a good operation.”

The L’Oréal boss says that buying Nestle’s stake would add to earnings and that the value of its stock would increase.

As a result, this puts the company in a very strong position to do so with a very strong cash balance and very able CEO and management who has performed well.

Strong position

"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," Euromonitor analyst Oru Mohiuddin told CosmeticsDesign-Europe.com.

This scenario 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," explains Mohiuddin..

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 fulfil its growth ventures.

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