Nestlé aims to get rid of a skin unit to focus on nutrition, nutrition

LONDON / ZURICH (Reuters) – Nestlé (NESN.S) put on sale Thursday its skincare unit, due to the underperformance of operators of Nescafé and Perrier water ditches and criticism of a militant investor who demands a review.

Nestle said it was exploring the unit's strategic options, saying that "Nestlé Skin Health's future growth opportunities are increasingly outside the group's strategic scope"

Nestle has agreed this week to sell its Gerber Life Insurance business for $ 1.55 billion, while sources told Reuters it also made an offer for GlaxoSmithKline (GSK.L) Horlicks drinks.

The skin care unit manufactures Cetaphil and Proactiv skin care brands, Restylane wrinkle fillers and dermatological prescription treatments. Last year, sales reached 2.7 billion Swiss francs ($ 2.8 billion), or about 3 percent of Nestlé's total.

Jean-Philippe Bertschy, an analyst at Vontobel, estimates that the activity amounts to 6.5 billion francs, excluding financial debts, provisions and deferred taxes. He said the sale could yield between 6 and 8 billion francs. Another analyst put the sales value at around 7 billion francs.

Nestlé Skin Health was created in 2014 when Nestlé acquired L'Oréal (OREP.PA) participation in their dermatology business Galderma.

Jefferies analyst Martin Deboo said the most likely exit options were a debt buyback or a sale to L'Oreal, if the French cosmetics company followed Nestlé for a strategic turnaround.

L'Oréal, of which Nestlé is a shareholder, declined to comment.

UNDER PRESSURE

Nestlé, the largest packaged food company in the world, is under pressure from Third Point, a hedge fund managed by investor Daniel Loeb, to take bold steps to improve returns.

Chief Executive Officer Mark Schneider, the first Chief Executive Officer for nearly a century, has met many of Third Point's requirements, including setting a margin target and accelerating acquisitions and divestitures.

One of the demands he did not address is the sale of Nestlé's 23% stake in L'Oreal, worth nearly 26 billion euros.

Baader Helvea's analyst, Andreas von Arx, said the plan to exit skin health could revive the discussions, as it also exceeded Nestlé's vision on Thursday.

"The focus on Nestlé's leading food, beverage and nutritional products provides the best opportunity for profitable long-term growth and is perfectly in line with our company's goals," said Paul Bulcke, president and former CEO of Nestlé. Nestle.

About-face

When Bulcke led Nestlé, skin treatments played a major role in the growth of more profitable and cost-effective health products to counteract the slowdown in traditional food activities.

But the unit's performance was poor, resulting in extraordinary costs, including inventory write-downs and a significant write-down of goodwill this year. Last year, Nestlé began to restructure its business by cutting jobs and closing a factory.

Disinvesting the company represents a symbolic break with the decisions of Schneider's predecessors, said Deboo.

"This suggests that Schneider has all the latitude necessary to act in the interests of shareholder value, without being limited by the decisions of the past," he said.

Many analysts and investors have asked to leave the sector of skin health, said von Arx, Baader Helvea, adding that Nestlé was on track to meet the promise of Schneider last September to replace 10% of his wallet.

Nestlé has also sold its American confectionery unit and has carried out several transactions in the café, involving Starbucks (SBUX.O) and blue bottle.

The review of skin health should be completed by mid-2019.

At the same time, Nestle said it remained committed to its health science unit, which sells medical nutritional products and buys a vitamin business this year.

Nestlé shares rose nearly 1% to 1049 GMT.

(1 dollar = 0.9668 Swiss francs)