L'Oréal shares jump on Nestle speculation

Liliane Bettencourt's death will trigger a release clause in a shareholder agreement with Nestle by March 2018

In Friday trading, the day after news was announced of Bettencourt's death, shares in L'Oréal were up 4%.

The original purchase of a stake in L'Oréal in 1974 was a white knight investment by Nestle and strategic for both parties, protecting the Bettencourt family – who feared hostile takeovers and even nationalisation of their company – and positioning Nestle as the second largest shareholder with 23%.

In 2004 an agreement was reached between Nestle and the Bettencourt family that neither of them would increase their stakes in the company during Liliane Bettencourt's lifetime, and for six months after her death.

The agreement ensured shareholder stability and that control would remain with the Bettencourt family.

But despite a reassuring statement from Francoise Bettencourt Meyers, the current status quo could possibly come to end early next year and investors are speculating that change is now inevitable.

In this painful moment for us, I would like to reiterate, on behalf of our family, our entire commitment and loyalty to L'Oréal
Francoise Bettencourt Meyers

So what are the options?

Mark Schneider

Nestle lags behind Unilever in health and beauty so there is pressure for it to expand in this area. An acquisition of the remaining shares could make sense, assuming that the Bettencourt shares would be for sale. However, following the statement from the Bettencourt family who are "committed and loyal", this may not be an option.

Nestle appointed Mark Schneider as Chief Executive earlier this year and his history and expertise in healthcare suggests he will push the company further that way.

In addition Schneider has set a strategic path away from major acquisitions; he may not be a buyer but he may come under pressure to be a seller. That is despite the fact that L'Oréal contributes an annual dividend of over €400m.

Another option would be a share split by Nestle giving its shareholders a bonus distribution allowing them to own shares in L'Oréal directly. Some of the larger shareholders at Nestle are said to support such a move.

While it is all just speculation, possibly whipped up by advisors who would profit from a move, spring 2018 will be a fascinating period for Nestle, L'Oréal and the Bettencourt family.

Companies