Liliane Bettencourt’s death could transform L’Oréal and Nestlé
L'Oréal heiress Liliane Bettencourt passed away at the age of 94 on Wednesday and almost instantly speculation about the French company's future began.
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Before we explain why, do read the FT obituary of her life here. It is both important background but also an extraordinary tale about a person who ranked as the world's richest woman at the time of her death. Her fortune is worth roughly $40bn.
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Liliane Henriette Charlotte Schueller was born on October 21 1922, the only child of Louise Madeleine Berthe and Eugene Schueller, the brilliant entrepreneur who founded what was to become the world’s largest cosmetics, shampoo and beauty group after developing a revolutionary hair dye in the family kitchen. Her mother died when she was just five years old and she formed a close bond with her father whom she adored. At 15 she joined her father’s company as an apprentice and in 1950 married André Bettencourt, a politician. He was a close friend of her father, served as a minister under Charles de Gaulle and became deputy chairman of L’Oréal.
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After the death of her father in 1957, Liliane inherited the L’Oréal fortune. The company went public in 1963 with Liliane maintaining a majority stake. In 1974, fearing the company might be nationalised after the election, she exchanged almost half her holding (nearly 30 per cent) for a 3 per cent stake in Nestlé, the food multinational. She developed a strong partnership with the Swiss group, entering into a controlling shareholders pact that expired in 2014.
And that brings us to the present situation. Check out the chart below courtesy of Google Finance to see the sharp move in L'Oréal's US-traded shares in the hours after the news of her death.
That's because speculation has been rife for years that Bettencourt's death would be a catalyst for changes in the company's shareholder base. See the breakdown here, with just over 33 per cent in the hands of the Bettencourt family and 23 per cent in the hands of Nestlé. L'Oréal has a market value of €98.9bn.
One scenario could see Nestlé make a move for L'Oréal, though under the terms of their arrangement the Swiss food and beverage company cannot purchase more shares in L'Oréal until six months after the death of Bettencourt. It also has the right of first refusal in any situation where the Bettencourt family decide to dispose of their holding.
Analysts at Olivetree Securities said: "The market has always speculated that her death would be the catalyst for Nestlé to finally make a move on L'Oréal. There is a limited overlap between the two companies, so although a full purchase of L'Oréal by Nestlé would be huge, the antitrust hurdles are straightforward."
That's probably not a prospect that would excite L'Oréal's management. Moreover, activist investor Dan Loeb's Third Point Management has only recently taken a stake in Nestlé, and among other things, called on the company to dispose of its L'Oréal stake.
And that brings us back to the life story of Bettencourt, whose troubled but crucially important relationship with her daughter is explained in the FT obituary.
Here's what Françoise Bettencourt Meyers, her daughter, said on Wednesday: “In this painful moment for us, I would like to reiterate, on behalf of our family, our entire commitment and loyalty to L'Oréal and to renew my confidence in its president Jean-Paul Agon and his teams worldwide.”
So, under another scenario, L'Oréal itself could buy back some or all of the stake. How might the company find the funds to do that quickly? It owns a 9.4 per cent stake in French pharmaceutical group Sanofi, which is worth about €10bn.