NSRGY Nestle SA (PK)

By Brian Blackstone and Ben Dummett 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 17, 2019).

ZURICH -- Nestlé SA has entered exclusive talks to sell its skin-health business to private-equity firm EQT and the Abu Dhabi Investment Authority for about $10.1 billion, the consumer-goods giant's latest move to reshape its sprawling portfolio.

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

Nestlé said Thursday it expects to close the sale of the skin-health business for 10.2 billion Swiss francs in the second half of the year, at which point it would update investors on its plans for the proceeds and its future capital structure.

The division, which includes face-care products Cetaphil and Proactiv, generated net sales of 2.8 billion francs in 2018. Nestlé, whose product mix also includes Purina pet food and Lean Cuisine frozen meals, has annual sales of about 91 billion francs.

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 treatments 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.

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 website.

The EQT-led consortium's pricey pursuit of the Nestlé division comes as private-equity firms in general are under pressure to invest the record amounts of cash the industry has raised in recent years from investors.

Carved-out businesses from a large company are attractive to private-equity firms looking to deploy big amounts of cash quickly. Such operations offer a growth opportunity for the buyer by employing a dedicated management team and applying resources that the business might not be getting as part of a larger entity.

Similar deals in Europe include KKR & Co.'s EUR6.83 billion acquisition of Unilever PLC's margarine-and-spreads business in 2017 and the EUR10.1 billion purchase of the specialty chemicals business of Akzo Nobel NV last year by a consortium led by Carlyle Group LP.

Faced with pressure from activist investors two years ago, Nestlé 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. And its approach appears to be paying off. Last month, Nestlé reported annual comparable sales growth of 3.4%, topping analyst expectations. Its share price has gained 28% over the past 12 months.

Nestlé shares rose 1.8% to 100.42 francs on 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 -- the maker of Butterfinger and Baby Ruth candy bars -- to 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.

Late that year it also acquired Canadian vitamin maker Atrium Innovations Inc. for $2.3 billion.

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

--Anthony Shevlin in Barcelona contributed to this article.

Write to Brian Blackstone at brian.blackstone@wsj.com and Ben Dummett at ben.dummett@wsj.com

(END) Dow Jones Newswires

May 17, 2019 02:47 ET (06:47 GMT)

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