Nestlé SA put its skin-health unit up for sale on Thursday, as the maker of Nescafe and Perrier water ditches underperforming businesses and fends off criticism from an activist investor demanding an overhaul.
Nestlé said it was exploring strategic options for the unit, saying “the future growth opportunities of Nestlé Skin Health lie increasingly outside the group’s strategic scope” and did not fit in with a sharper focus on food, drinks and nutritional health.
Nestlé agreed this week to sell its Gerber Life Insurance business for US$1.55-billion, while sources said it was also bidding for GlaxoSmithKline PLC’s Horlicks drink.
The skin-health unit makes the Cetaphil and Proactiv skin-care brands, Restylane wrinkle fillers and prescription dermatology treatments. It had sales of 2.7-billion Swiss francs ($3.6-billion) last year, accounting for about 3 per cent of Nestlé’s total.
Vontobel analyst Jean-Philippe Bertschy estimated the business was worth between 6-billion and 6.5-billion francs ($8.07-billion to $$8.7-billion), excluding financial debt, provisions and deferred taxes. He said it could fetch between 6-billion and 8-billion francs ($10.76-billion) in a sale. Another analyst put the sale value at about 7-billion francs ($9.4-billion).
Nestlé Skin Health was formed in 2014 when Nestlé bought L’Oreal SA’s stake in their Galderma dermatology venture.
Jefferies analyst Martin Deboo said the most likely exit options were a leveraged buyout or a sale to L’Oreal, if the French cosmetics firm followed Nestlé in making a strategic U-turn.
L’Oreal, in which Nestlé is a shareholder, declined to comment.
Nestlé, the world’s largest packaged-food company, is under pressure from Third Point, a hedge fund run by investor Daniel Loeb, to take bold moves to improve returns.
Chief executive Mark Schneider, the first externally hired CEO in nearly a century, has addressed several of Third Point’s demands, including setting a margin target and speeding up acquisitions and divestitures.
The one demand he has not addressed is the sale of Nestlé’s 23-per-cent stake in L’Oreal, worth nearly €26-billion ($39.5-billion).
Baader Helvea analyst Andreas von Arx said the plan to exit skin health could reignite talk about the stake, since that also lay outside the vision Nestlé outlined on Thursday.
“Sharpening our strategic focus on Nestlé’s core food, beverage and nutritional health products offers the best opportunity for long-term profitable growth and is fully in line with the pursuit of our company’s purpose,” Nestlé chairman and former CEO Paul Bulcke said.
When Mr. Bulcke ran Nestlé, skin treatments were a major part of a push into higher growth and more profitable health products taken to counter a slowdown in its traditional food businesses.
But the unit has performed poorly, incurring one-off costs including inventory writedowns and a significant goodwill impairment this year. Last year, Nestlé started restructuring the business, cutting jobs and closing a factory.
Divesting the business represents a symbolic break with the decisions of Mr. Schneider’s predecessors, Jefferies’s Mr. Deboo said.
“This in turn suggests that Schneider is being given full latitude to act in the interests of shareholder value, unbounded by the decisions of the past,” he said.
Exiting skin health is something many analysts and investors had asked for, Baader Helvea’s Mr. von Arx said, adding that it put Nestlé “fully on track” to deliver on Mr. Schneider’s promise last September to swap out as much as 10 per cent of its portfolio.
Nestlé has also sold its U.S. confectionery unit, and has done several deals in coffee, involving Starbucks Corp. and Blue Bottle.
The skin health review is due to be completed by mid-2019.
At the same time, Nestlé said it remained committed to its health-science unit, which sells medical nutritional products and was bulked up with the purchase of a vitamin business earlier this year.
Nestlé shares were up nearly 1 per cent in early trading.