NEW YORK (The Deal) -- L'Oreal clearly thinks that it is worth it. The world's largest cosmetic's maker on Tuesday, Feb. 11, agreed to buy and cancel 8% of its stock owned by Nestle in exchange for 6.5 billion ($8.9 billion) in cash and assets, cutting the Swiss food company's stake to 23.3%.
L'Oreal will pay 3.4 billion in cash and transfer to Nestle the 50% it doesn't already own of Swiss dermatology company Galderma. The deal values L'Oreal's 50% stake in Galderma at 3.13 billion, including 490 million of debt.
The agreement ends immediate speculation that has surrounded Nestle's 29.4% stake in L'Oreal since August, when Nestle said it would let expire an option that gave L'Oreal's founding Bettencourt Meyers family a right of first refusal on the holding. That opened the door to a possible sale of the entire stake, prompting L'Oreal to declare that it had the means to buy the holding.
"It is a bit anticlimactic given all the speculation," said RBC Capital Markets' London-based analyst James Edward Jones. "It sounds as though Nestle is planning to stick around for the long-term."
Nestle considers its stake to be "strategic," Nestle Chairman Peter Brabeck-Letmathe told journalists on Tuesday. "I do not see this as the first step to leaving L'Oreal, not at all."
Nestle said it will continue to act in concert with the Bettencourt Meyers family, whose stake in L'Oreal will increase to 33.31%, from 30.6%, as a result of the cancellation of the shares by L'Oreal.
""I am very pleased with the proposed strategic transaction," L'Oreal Chairman and CEO Jean-Paul Agon said at a presentation of his company's annual results on Tuesday. "L'Oreal will benefit from the very significant stake of the family whose commitment to the company has always been total and will be further strengthened by this agreement."
The deal also secures L'Oreal's stake in French drug company Sanofi. L'Oreal owns 9% of Sanofi, a stake worth about 8.55 billion. It had been thought likely to sell the holding in the event that it bought all of Nestle's stake.
"We are a major shareholder in Sanofi and when we don't need to sell we don't sell," Agon told analysts.
The transaction values L'Oreal's shares at 124.48, a 3.5% discount to the Paris-based company's Monday closing price of 129 per share. The price represented a slim premium to L'Oreal's Friday closing price of 123.50, before reports emerged on Monday of an imminent deal.
The acquisition will boost earnings per share by more than 5% on a recurring basis, L'Oreal's Christian Mulliez, finance vice president, said Tuesday. The disposal of L'Oreal's 50% stake in Galderma comes just ahead of the implementation of new accounting rules that would have blocked it from consolidating the Galderma revenues in its accounts.