Nestlé sells its skin health unit to focus on food and nutrition

ZURICH / LONDON (Reuters) – Nestlé (NESN.S) put on sale its skincare unit on Thursday, while the manufacturer of the Nescafé and Perrier water ditches is underperforming and seeks to defend itself from criticism from a militant investor who is demanding a redesign.

The Swiss-based company is under pressure from Third Point, a hedge fund managed by investor Daniel Loeb, which has demanded bolder measures to improve its performance.

Nestlé said it was exploring the unit's strategic options, saying "Nestlé Skin Health's future growth opportunities are increasingly outside the group's strategic reach" and focus on nutrition, drinks and nutritional health.

This week, Nestle agreed 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, which manufactures the Cetaphil and Proactiv skin care brands, as well as Restylane fillers, generated sales of 2.7 billion Swiss francs (2.8 billion last year, about 3% of Nestlé's total.

The Vontobel analyst, Jean-Philippe Bertschy, estimated that the activity was 6 billion 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.

Jefferies analysts said Nestlé's announcement was "a significant and positive development, both in itself and as a symbol of the desire to kill sacred cows in search of shareholder value."

They said that a sale to L'Oreal or a buyback were the main exit options.

The Nestlé skincare company sells dozens of different prescription, over-the-counter and cosmetic and corrective products used by doctors.

"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 Nestlé President Paul Bulcke.

Nestlé created the company in 2014 when it acquired L'Oreal (OREP.PA) participation in their joint venture Galderma.

Skin treatments have played a major role in the growth of health products and their profitability, to counteract the slowdown of their traditional food activities. But the division fought against generic competition and saw sales of lighter products.

Last year, Nestlé cut 450 jobs at a research and development center in the south of France and shut down a Swiss plant in August.

Nestlé has conducted a review of its Skin business which is expected to be completed by mid-2019. He stated that he remained attached to his health sciences unit, which sells medical nutritional products. He bought a vitamin company this year.

Nestlé's shares were roughly stable at 07:30 GMT.