Published On: Fri, Jul 11th, 2014

L’Oreal Completes $8 Billion Deal To Cement Bettencourt Meyers Family Control

 

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Yesterday the giant cosmetics company L’Oréal announced it had completed the buy-back of 48.5 million of its own shares from long-standing partner Swiss food and, increasingly, health and nutrition-related company Nestlé.

The transaction which had been first announced in February, called for the repurchase of the shares, representing about 8% of the outstanding shares of the company, in a US$8.2 billion total deal.

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L’Oréal has paid for the shares in two agreed ways. First, for 27.3 million of the Nestlé-owned shares it has put up cash of about US$4.6 billion (Euros 3.4 billion) at the then agreed reference price of about US$169.29 (Euros 124.48) per share. This price was the average closing price of L’Oréal’s stock in the three months immediately prior to the striking of their agreement. The money to pay for it came from L’Oréal’s own existing cash resources, and through the issuance of short term paper.Then in addition, for the remaining 21.2 million shares being bought back, L’Oréal was to provide consideration to Nestlé by the transfer to Nestlé of its own 50 % interest in a joint venture they had formed equally between them, in the Swiss dermatology pharmaceuticals company Galderma. This transaction has now also been completed.

The total shareholding interest in L’Oréal held by the founding French Bettencourt Meyers family therefore now increases from 30.6 percent to just over 33.3 percent. Conversely, Nestlé’s own stake in L’Oréal has been reduced from 29.4% to approximately 23.3% of its shares after the buy-back.

With the change in shareholdings the number of agreed Nestlé representatives on L’Oréal’s Board of Directors reduces from 3 Directors to 2, implemented with the resignation from the L’Oréal Board of Mr. Paul Bulcke. A long-standing Shareholders’ Agreement between the two companies has also been modified, adjusting its permitted cross-ownership ceiling provisions to these new post-closing levels.

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This transaction has now cemented the Bettencourt Meyers family control of the cosmetics giant, as it continues to expand internationally – and particularly in China and other Asian markets. L’Oréal also reports that, in addition, the transaction itself should be modestly accretive to L’Oréal’s earnings pert share in its first full year.

Lilliane Bettencourt, who formerly ran L’Oréal herself, and who today is aged 91, was declared unfit to manage her own affairs by a French court in early 2012 due to the onset of dementia, after prolonged family and legal battles, and operating control passed then to her daughter, and heiress to her estate, Françoise Bettencourt Meyers. Françoise had converted to Judaism and is married to a former banker, Jean-Pierre Meyers, who today serves as Vice Chairman of the Board of L’Oréal, on his wife’s behalf.

In 2012 Lilliane’s grandson, Jean-Victor Meyers, then also replaced Liliane herself on the Board of Directors of L’Oréal as her representative, thus maintaining peace within the family. The family’s combined wealth, which still comes mostly from their L’Oréal stake, is estimated by Forbes currently at about US$38 billion.

Even with the restructuring of their mutual shareholdings the link between Nestlé and L’Oréal remains an important one going forward. At the time the deal was announced, in February, Peter Brabeck-Letmathe, the Chairman of Nestlé, himself said: “Following the decrease of its stake in L’Oréal, Nestlé will continue to support the development of L’Oréal as in the past 40 years.”

He added, “In this context, Nestlé will continue to act in concert with the Bettencourt Meyers family and the existing agreements, adapted to the new situation, will remain in place.”  Nevertheless JeanPierre Meyers, who previously was a member of the Nestlé Board of Directors, did not stand for re-election at the Nestlé Annual General Meeting held in April, also reflecting the planned new arrangements for these two hugely important companies.

 

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