Nestlé to Sell 10% Stake in Flavors & Fragrances Maker Givaudan for $1.28 Billion as the Swiss food giant pushes ahead with a streamlining effort

Nestlé to Sell Stake in Givaudan

Swiss food giant is offering the 10% stake worth $1.28 billion privately to institutional investors

JOHN REVILL

Updated Dec. 6, 2013 5:46 a.m. ET

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ZURICH— Nestlé S.A. NESN.VX +1.16% is selling its 10% stake in flavors and fragrances maker Givaudan S.A. GIVN.VX -2.35% valued at nearly 1.2 billion Swiss francs ($1.3 billion) as the Swiss food giant pushes ahead with a streamlining effort.Nestlé, the world’s biggest food company by revenue, said the shares are being sold not in the open market but through a private placement to institutional investors such as pension funds. Goldman Sachs GS -0.05% is arranging the sale.

Nestlé, the maker of KitKat chocolate bars and Nescafé instant coffee, is one of Givaudan’s biggest customers for food flavorings. Nestlé acquired its stake when it sold the food ingredient company FIS to Givaudan for a combination of cash and stock in 2002.

“Nestlé has been very satisfied with its holding but believes now is the appropriate time to divest,” the company said in a statement.

The sale comes as Nestlé looks to unload underperforming businesses. The company is reviewing its nearly 2,000 business units and has already sold most of its Jenny Craig weight management business for an undisclosed sum.

Nestlé, which is grappling with its slowest annual growth rate since 2009, is streamlining in a bid to focus on specific areas such as infant nutrition. The company’s Chief ExecutivePaul Bulcke told The Wall Street Journal in October that Nestlé ultimately wants to fix or sell a “sizable percentage” of its underperforming brands and businesses.

Analysts expect Nestlé to sell other assets including its PowerBar fitness bar business, as well as some smaller water brands.

Nestlé’s decision to sell some units has added to speculation that the company could sell its 29.8% stake in French cosmetics company L’Oréal SA OR.FR +3.84% . A deal between Nestlé, which has owned a stake since 1974, and L’Oreal’s founding family expires in April 2014, giving the food company more flexibility in how it can handle the investment. The agreement over the stake, valued at about €22 billion ($30 billion), means one party must give the other first option to buy its shares if it decides to sell its holding.

Nestlé Chairman Peter Brabeck-Letmathe, who is also vice chairman of L’Oréal, said earlier this year that “all options were on the table, including the status quo” when the deal expires.

A Nestlé spokesman said Friday that the Givaudan sale “has no implications for our shareholding in L’Oréal.”

Nestlé holds 926,562 Givaudan shares, a stake valued at 1.145 billion Swiss francs, or $1.28 billion.

A spokesman for Givaudan declined to comment on the sale.

 

Nestle sells Givaudan stake as it trims portfolio

7:20am EST

* Givaudan stake sale at price range of CHF 1,150-1,170 – traders

* Acquired the 10 percent stake in 2002 through sale of FIS

* Givaudan shares up 153 percent since Jan. 2002

By Caroline Copley and Blaise Robinson

ZURICH/PARIS, Dec 6 (Reuters) – Nestle was selling its 10 percent stake in Swiss fragrance and flavour maker Givaudan on Friday for as much as 1.08 billion Swiss francs ($1.20 billion), as it concentrates resources on its core food businesses.

The world’s biggest food group cut its sales outlook earlier this year and said it would dispose of underperforming businesses to slim down its sprawling portfolio which spans Perrier bottled water, KitKat chocolate and Gerber baby food.

“Nestle is confirming its intention of better allocating its capital,” said Vontobel analyst Jean-Pilippe Bertschy.

The proceeds could be used for bolt-on acquisitions or a share buyback, said Kepler Cheuvreux analyst Jon Cox.

There has also been market speculation in recent months about whether Nestle will sell a 30 percent stake it has in the world’s biggest cosmetics firm, L’Oreal, when restrictions on selling it loosen in April 2014.

“Additionally, investors might now see a disposal of the L’Oreal stake as more likely,” said Helvea analyst Andreas von Arx.

Shares of L’Oreal were up 3.2 percent at 126.30 euros.

Last month, Nestle sold the bulk of its Jenny Craig weight-loss business and sources familiar with the matter have told Reuters Nestle is looking for a buyer for its PowerBar energy bars.

Traders on Friday said the sale of the Givaudan stake, managed by Goldman Sachs through an accelerated book building, was being offered at a price range of 1,150-1,170 Swiss francs a share, valuing the entire stake at as much as 1.08 billion Swiss francs ($1.20 billion).

That would mean the placement was done at a 5.3-7.0 percent discount to Thursday’s closing price of 1,236 francs. Givaudan shares fell as much as 5.3 percent in early trade on Friday and were down 3.6 percent at 1,191 francs at 1017 GMT.

Shares of Nestle, which said in October it had a list of brands that have underperformed for too long and need to be sold, were up 1.3 percent at 65.35 Swiss francs at 1012.

Nestle acquired the stake in Givaudan, one of its suppliers, 11 years ago as part of a deal to sell Givaudan its food ingredient company FIS for 750 million francs in cash and stock.

The move was also strategic, in helping to prevent a takeover of Givaudan, which was founded in the late 19th century and spun off from Swiss pharmaceuticals group Roche in 2000.

Today it is the world’s top supplier of fragrances, extracts and flavourings with customers ranging from soup and soap maker Unilever to perfume makers like Dior and Prada.

Its shares have gained 153 percent since the FIS sale was announced in Jan. 2002.

“Nestlé has been very satisfied with its holding but believes now is the appropriate time to divest,” it said in a statement.

Nestle is the second biggest shareholder in Givaudan with a 10.03 percent stake as of 27 November. U.S. billionaire Bill Gates is the top shareholder with 10.3 percent.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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