NSRGY Nestle SA (PK)

By Brian Blackstone 

ZURICH -- Nestle SA has entered exclusive talks to sell its skin-health business to private-equity firm EQT and the Abu Dhabi Investment Authority for 10.2 billion Swiss francs ($10.1 billion), its latest move to reshape its sprawling portfolio and revive sluggish growth.

The Swiss consumer goods giant said in September it was exploring options for the unit as part of a broader effort by Chief Executive Mark Schneider to reinvigorate Nestlé's portfolio and focus more on coffee, pet care and consumer health.

Nestle said Thursday it expected to close the sale of the skin-health business, which includes face-care products Cetaphil and Proactiv, in the second half of the year, at which point it would update investors on what it planned to do with the proceeds and its future capital structure.

The division generated net sales of 2.8 billion Swiss francs in 2018.

Analysts at Vontobel Research said the price tag was at the high end of its estimates. "In our model, we carried a price of 7 billion Swiss francs. However, we didn't rule out a price tag of up to 10 billion Swiss francs," they said.

Nestlé established its skin-health unit in 2014 after taking full control of Galderma, which added acne and skin-cancer treatment to its portfolio. Nestlé said at the time it wanted to take a more holistic approach to health than "mere nutrition" and bolstered the unit with several acquisitions including a $1.4 billion deal for skin-care products from Valeant Pharmaceuticals Inc. But as sales growth slowed, investors questioned how the unit fits into Nestlé's broader business.

Nestle is being advised on the deal by Credit Suisse and Evercore.

Founded in 1994 with the backing of Sweden's prominent Wallenberg family, EQT has grown into one of Europe's largest buyout firms with about EUR40 billion ($44.8 billion) in assets under management, according to its web site.

The EQT-led consortium's pursuit of the business and hefty price it's paying comes as private-equity firms in general are under pressure to invest the sector's record amount of cash that the industry has raised in recent years from investors.

Carved-out businesses from a larger company are particularly attractive to private equity firms because they are often large, allowing the buyout firms to deploy big amounts of cash quickly. As non-core to the parent company, these types of divisions offer an opportunity for the buyer to grow the businesses by employing a dedicated management team and devoting resources that the units might otherwise not be getting as part of a larger entity.

Similar deals in Europe include KKR & Co.'s EUR6.83 billion deal in 2017 to acquire Unilever PLC's margarine-and-spreads business and the EUR10.1 billion acquisition of the specialty chemicals business of Dutch paints giant Akzo Nobel NV last year.

Thursday's step underscored Nestlé's prodding approach to revamping its product mix that includes Purina pet food and Lean Cuisine frozen meals and generates annual sales of around 91 billion Swiss francs. Faced with pressure from activist investors two years ago, Nestle said it would focus its capital spending on high-growth areas such coffee, pet care, and infant nutrition in a bid to combat sluggish sales in a fast-changing consumer environment.

Its approach has paid off. Last month, Nestle reported annual comparable sales growth of 3.4%, topping analyst expectations. Its share price is up 28% in the last year. Nestle shares were little changed late morning Thursday.

Last year, Nestlé sold its Gerber Life Insurance unit to Western & Southern Financial Group for $1.55 billion in cash. It also sold its U.S. confectionery business -- which includes Butterfinger and Baby Ruth candy bars -- to Italian candy-maker Ferrero International SA for $2.8 billion in cash.

Meanwhile, it has beefed up its coffee business. One year ago it bought the rights to market and sell Starbucks coffee and tea products in grocery and retail stores for more than $7 billion. In 2017, Nestlé bought a majority stake in U.S. premium coffee chain Blue Bottle.

In late 2017 it bought Canadian vitamin maker Atrium Innovations Inc., for $2.3 billion.

"Nestlé is well on track in successfully reshuffling its portfolio, " the Vontobel analysts said.

--Anthony Shevlin in Barcelona contributed to this article.

Write to Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

May 16, 2019 05:12 ET (09:12 GMT)

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