LOREAL AND NESTLE CASE STUDY

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Abstract

The company has offered solid total stakeholder return over the long run in past ten years as well as constantly pays attention on developing a sustained stakeholder value. The board and management take into consideration about every shareholder’s angle in serious manner as well as also welcome the constant input. The company Nestle is considered as the best positioned portfolio specifically in customer packs products sector. However, the shares of the company have massively underperformed in many US and Europe market staples. As per Third point statement, in rare circumstances a Nestle business quality with number of avenues looks for more improvement.

 

 

Contents

 

Introduction

The company Nestle had in past been at some liberty to whittle down the holding of L’Oréal, but and still budge, despite of the pressure one gets from Daniel Loeb who happen to be founder of Third Point. As discussed in report he managed to push the sale among the demands for number of Swiss companies to accelerate the process of strategy focused overhaul. As per the company, they have approx. or over 1.8 billion of euros in hard cash as well as the Sanofi share. The company is taking it very seriously as well as loyal and active stakeholder in Sanofi, however in situation they will be ready and be sure that it is not enough, which have many letters or notices from banks which have said which the team will want to lend some money to the firm.Bottom of Form

 

Question 1: What is Third Point’s charge with regard to Nestle’s investment in L’Oréal? Should Nestle take this charge seriously?

The concept of Third Point is unveil with world’s largest packaged food maker for improving the margins, and the buying back stocks or then shedding the non-core business. Hence, it discloses the Nestle position with letter to investors about argument with the food company to sell 23% of the stakes in cosmetics of French Firm in SA.

Third Point is for the 40 million shares in Nestle with making the company largest shareholder with Nestle investment and the investment done personally along the fund. . It was hedge fund taken from New York that had approx. seventeen billion dollars as assets which also come under the management toward the end of the year 2016 (Brauer and Wiersema, 2018).

Nestle should take the charge where:

It is profitable than the rivals with Loreal operating the profit margins for 17.6% last year which was seen to be high than the Nestle and Unilever.

The expectation of the margins is to handle the increase with reflection on the investments with major response for the elevated industry competitive industry.

The fact is that firm’s non-core finance share in L’Oréal must be sold because the Board stays is not able to further highlight a compelled long run strategy focused rationale for its constant ownership. Nestle must utilise the proceeds from such sales to perform more M&A is a crucial phase or become part of expedited share focused buybacks (Guo et al.,2019).

Question 2: What role does the L’Oréal stake play for Nestle?

Nestle has been able to work on the leading experts for the different areas of nutrition, water and the development at the rural level. The discussion is about the challenges related to the role of business to help in solving the problems. The structure of ownership is based on the responsibility or the liability to handle the loss and the investments for the partnership.

The firms understand where it has the complete helps of its 2 massive stakeholders, the company and the Bettencourt family, while the firm has gained good return on the investment over the long run. The shareholder identities are not public which are mainly under the Swiss law, and so there are closer relationship for the shareholders. It comes with the largest range of the cosmetics group and the right for the refusal as well. The idea is about the focus on the innovation with marketing and the ambition that continues to share with the driving of the company. Nestle has been involved in working as a pharmacist with training the chemistry for the scientific background which helps in improving the approach to business. The experimented approach is for the production and the inventing of the formula that would lead to spelling the fortune. The important approach is about the tastes to enjoy the foo.

The language of the agreement that exist between the Nestle and the family of Bettencourt are public. The concept language is that there are number of parties that can never be able to raise the stake in the company L’Oréal during the whole life of Mrs Bettencourt and 6 months right after that (Klein and Zur, 2009).

Question 3: Examine the arguments made by Third Point and Nestle on this issue. Whose arguments have greater merit?

The company Nestle is considered as the best positioned portfolio specifically in customer packs products sector. However, the shares of the company have massively underperformed in many US and Europe market staples. As per Third point statement, in rare circumstances a Nestle business quality with number of avenues looks for more improvement.

The company product mix consist of items like baby milk, Nespresso Coffee, pet food and chocolate bars by KitKat which is constantly under pressure to increase the level of profitability since the international food sector have a reaction towards pressure that is completely unleashed by the company called Kraft Heinz (Pidun, 2019).

The overall hedge fund advises the company establish a formal level of profit margin target for 18 to 20 by the year 2020, motivates the debt to purchase back the shares, may put it for sale of many non-core goods as part of the portfolio, and the sale is for twenty three precent share in cosmetic industry of L’Oréal, a share that have the market value of approx. twenty seven billion dollars. The company’s present operational margin is approx. fifteen percent and the company are not able to answer immediately to ask for any comment (Venkiteshwaran et al., 2008).

In Nestle, Loeb asked see all possible divisions that were sold, partly to increase the level of funds for capital focused distribution to the stakeholders or to units that were divested into public traded firms. For instance, Loeb advises that improved level of earning strength can permit the firm to award the stakeholders with constant dividend raise (Zacharias, 2010).

Question 4: What should Ulf Mark Schneider do about the L’Oréal stake?

The company Nestle part in the L’Oréal company has been advantageous to both the firm for number of years. According to the official statement by Nestle, the company L’Oréal has complete help of its two largest shareholders which are Bettencourt family and Nestle. At the same time, Nestlé has gained from many ideal forms of returns on the investment over the long period of time. In addition, the company L’Oréal and Nestle have gained from the cooperation via two succeeding joint ventures that are already discussed Lab Inneov and Laboratoires and combined work is part of the studies as well.

The company L’Oréal discussed that it can finance the shopping of the holding, currently worth of approx. 22.3 billion euros, with cash, with the sales of the stake in French drug-maker Sanofi or via borrow if required.

In case the company Nestle might want to sell it off and for that L’Oréal is ready now since the earning of the company are improving with time. Major losses in the L’Oréal heiress that is Liliane Bettencourt established the clock which ticked towards the end of 44 old stakeholder pact between the French firm’s that can be found in family as well as Nestle (Zacharias, 2010).

Recommendations

During appreciating the contribution of the L’Oréal share over many years, here Third Point was part of empathy in asking about the Nestle sale of its share or stake. The company’s rationale was which to have the firm as part of portfolio is not part of any strategy and stakeholders must be free to select whether they need to further invest in Nestle and L’Oréal.

The fact is that firm’s non-core finance share in L’Oréal must be sold because the Board stays is not able to further highlight a compelled long run strategy focused rationale for its constant ownership. Nestle must utilise the proceeds from such sales to perform more M&A is a crucial phase or become part of expedited share focused buybacks.

 

Reference

Brauer, M. and Wiersema, M., 2018. Analyzing analyst research: A review of past coverage and recommendations for future research. Journal of Management, 44(1), pp.218-248.

Elkamhi, R., Pungaliya, R.S. and Vijh, A.M., 2014. What do credit markets tell us about the speed of leverage adjustment?. Management Science, 60(9), pp.2269-2290.

Guo, J.M., Utham, V. and Wang, X., Are Hedge Fund Activists Break-Up Experts: Evidence From Corporate Divestitures. Corporate Finance, 14(4), pp.323-336.

Hansell, G. and Heuskel, D., 2012. The CEO as Investor. Own the Future: 50 Ways to Win from the Boston Consulting Group, pp.221-225.

Klein, A. and Zur, E., 2009. The implications of hedge fund activism on the target firm’s existing bondholders. Available at SSRN 1507870.

Kruse, T.A. and Suzuki, K., 2009. Has the Threat of a Takeover Improved the Management of Target Firms? An Analysis of Firms in Which M&A Consulting, Japan’s First Hostile Bidder, Acquired Stakes. An Analysis of Firms in Which M&A Consulting, Japan’s First Hostile Bidder, Acquired Stakes (October 30, 2009). Corporate Ownership and Control, 7(2).

Pidun, U., 2019. Corporate Financial Strategy. In Corporate Strategy (pp. 229-252). Springer Gabler, Wiesbaden.

Venkiteshwaran, V., Iyer, S. and Rao, R., 2008. Shareholder Activism à la Carl Icahn: A clinical study.

Zacharias, E., 2010. Activist Investor Impact on CEO Compensation of Investment Targets.

zu Knyphausen-Aufseß, D., Mirow, M. and Schweizer, L., 2011. The role of financial analysts in the strategy formation process of business firms. Industrial and Corporate Change, 20(4), pp.1153-1187.