Peter Brabeck, chairman and former CEO of the Nestle group, implied in an interview that they did not necessarily intend to renew their contract with the cosmetics giant, telling the Handelszeitung newspaper: “the right of first refusal will not be extended, that is quite clear.”
Speaking publicly on the issue for the first time, Brabeck did not suggest a definite course of action for Nestle but stated that they would keep “all options on the table,” including maintaining the status quo.
L'Oreal CEO Jean-Paul Agon has stated that he has the capital to buy Nestle's 29.5 percent stake in his company if the contract is not renewed in 2014. Nestle is the second-biggest shareholder after the Bettencourt family, with their percentage valued at around €22bn.
The food manufacturer had previously stated that it would not decide on the future of its stake before 2014.
Cash available
According to the company's second quarter financial report L'Oreal has €570m Euros in available cash as of the end of June, with brokers speculating that it could raise capital to buy back its shares by selling shares in Sanofi and borrowing funds for as much as three times its net debt to earnings.
Nestle’s current agreement with the industry leader began in April 2004, when Gesparal, the majority shareholder, announced that its two main stockholders had completed a merger with L’Oreal.
The expiry of the Swiss company’s ten-year right of first refusal agreement with L’Oreal in April 2014 will make it much easier for Nestle to sell- the firm is contractually obligated not to change its stake in the company until the agreement ends.
A long-term relationship
At the time, the company highlighted the fact that Nestle would benefit from a more transparent valuation of L'Oreal's stake, and the strategic importance of the food giant's investment in the cosmetics company.
The two companies have a long history of association, including creating the skincare company Galderma together in 1981. L’Oreal and Nestle also created another joint venture in 2002 with the company Laboratoires INNEOV, which develops cosmetic nutritional supplements.
The Bettencourts weigh in
Earlier in August the Bettencourt family, the largest shareholder with 30.5 percent, stated that they had no plans to sell its stake in L’Oreal’s capital.
"The family wishes to reiterate its long-standing commitment to L'Oreal and to confirm that no disposal of its shares is being contemplated," they said in a statement.