What's going on?
The world’s largest public food company, Nestlé, on Thursday revealed it was in exclusive negotiations with a group of investors, including a private equity firm, to sell its skincare business for a smooth $10 billion.
What does this mean?
Although last quarter’s results showed the tide beginning to turn, many consumer staples giants (including Nestlé) have spent the last few years struggling to raise prices thanks to low inflation. Instead, they’ve turned to skin-deep cost-cutting measures in order to grow profits.
There’s been speculation for months that Nestlé would sell or separate off its less-than-glowing skin health business in a bid to focus on faster-growing areas like petcare and infant nutrition. Now, the company’s confirmed its latest streamlining wheeze is flogging the unit – which it took full control of just four years ago – to private investors.
Why should I care?
The bigger picture: Activists keep active.
Activist investors have had a lot to say for themselves recently, and Nestlé is no exception. Last year, a prominent troublemaker amassed a $3 billion stake in the company before publishing a lengthy criticism of its strategy. As well as the sale of Nestlé’s own skincare business, he also encouraged the company to sell its 23% stake in cosmetics giant L’Oreal – which could perhaps enable it to make a blockbuster acquisition elsewhere. Coffee may be one area of particular interest; shareholder activism, indeed, was behind the UK’s Whitbread selling its Costa Coffee chain to Coca-Cola in August.
For markets: You’ve got to cut to grow.
Selling its skincare unit to private buyers may be an attractive solution for Nestlé, given that it avoids the potential anti-competition concerns involved in selling to rivals (just ask Walmart). After selling its US confectionery business in January, news in February that Nestlé was reassessing its cold cuts counter appeared to reinforce the company’s commitment to faster-growing divisions (like plant-based burgers). If successful, that could spell higher sales and profit in the future – and a more activist-pleasing share price.