L’Oreal ready to buy Nestle stake in cosmetics leader

Bottles of shampoos, conditioners and color spray are displayed at cosmetics company L'Oreal's new World hair research centre in Saint-Ouen near Paris. (Reuters)
Updated 09 February 2018
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L’Oreal ready to buy Nestle stake in cosmetics leader

PARIS: L’Oreal signalled its readiness to buy Nestle’s 23 percent stake in the world’s biggest cosmetics firm on Friday, which along with strong results lifted the French company’s shares.
L’Oreal said it could finance a purchase of the holding, which is now worth around €22.3 billion ($27.4 billion), with cash, by selling its stake in French pharmaceutical group Sanofi or through borrowing.
“If Nestle one day wants to sell, we are ready,” Chairman and Chief Executive Jean-Paul Agon said after L’Oreal released fourth-quarter earnings.
Billionaire Liliane Bettencourt’s death in September has focused attention on how L’Oreal’s founding family and its major shareholder Swiss food group Nestle would manage their stakes.
Investor Daniel Loeb, founder of hedge fund Third Point, has pushed for Nestle to sell its L’Oreal stake among his demands for the Swiss firm to speed a strategy overhaul.
“We have €1.8 billion in cash, we have the Sanofi stake. We are also a very serious and loyal and active shareholder in Sanofi, but in case we will be ready and I’m sure if it was not enough, we have many love letters from banks that have said that they would love to lend us some money.” he added.
Nestle and Sanofi declined to comment.
Shares in L’Oreal, whose brand ambassadors include Helen Mirren, Eva Longoria and Blake Lively, were up 2.4 percent in early trade, among the top gainers on France’s blue-chip CAC-40 index. Nestle shares were up 1.1 percent, while Sanofi was 0.7 percent lower.
“Scarcely a surprise, but this may excite some: An acquisition of the stake by L’Oreal, part-funded by a sale of its own Sanofi stake would be circa 10 percent accretive,” Investec Securities analysts said in a note.
At today’s stock price, L’Oreal’s 9 percent stake in Sanofi is worth more than €7 billion, according to Reuters data.
L’Oreal entered the pharmaceuticals business in 1973 with the purchase of Synthelabo. This was later merged with Elf Aquitaine’s drugs business in the late 1990s, with L’Oreal retaining a stake in the enlarged Sanofi group.
“We see this as no change to the status quo from a L’Oreal perspective. Nor do we expect an imminent about-turn from Nestle, which reiterated its commitment to the L’Oreal holding in September,” Barclays analysts wrote.


China’s real estate investment slows as caution sinks in

Updated 19 October 2018
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China’s real estate investment slows as caution sinks in

  • Property increases downside risks to economy
  • September new construction starts up by a fifth

BEIJING: Growth in China’s real estate investment eased in September and home sales fell for the first time since April, as developers dialled back expansion plans amid economic uncertainties and as additional curbs on speculative investment kicked in.
A cooling market could increase the downside risks to the world’s second-largest economy, which faces broader headwinds including an intensifying trade war with the United States.
However, while analysts acknowledge increasing caution in the property market, they say investment levels are still relatively high, suggesting a hard landing remains unlikely.
Growth in real estate investment, which mainly focuses on residential but also includes commercial and office space, rose 8.9 percent in September from a year earlier, compared with a 9.2 percent rise in August, Reuters calculated from National Bureau of Statistics (NBS) data out on Friday.
“I think overall, China’s real estate market is still resilient, and the decline in sales is within our expectations,” said Virginia Huang, Managing Director of A&T Services, CBRE Greater China.
“There is no sign that the government has relaxed their control, but it still has many methods and tools to support the market if the economy deteriorates rapidly,” Huang said.
Real estate has been one of the few bright spots in China’s investment landscape, partly due to robust sales in smaller cities where a government clampdown on speculation has been not as aggressive as it is in larger cities.
The market has struggled as authorities continued to keep a tight grip over the sector, ramping up control in hundreds of cities. Transactions fell sharply over the period dubbed “Golden September and Silver October,” traditionally a high season for new home sales.
Property sales by floor area fell 3.6 percent in September from a year earlier, compared with a 2.4 percent gain in August, according to Reuters calculations, the first decline since April. In year-to-date terms, property sales rose 2.9 percent in the first three quarters.
China’s central bank governor Yi Gang said last week he still sees plenty of room for adjustment in interest rates and the reserve requirement ratio (RRR), as downside risks from trade tensions with the United States remain significant.
The government has implemented four RRR cuts this year, releasing hundreds of billions in new liquidity to the market.
China has for several years pushed a deleveraging campaign to reduce financial risks, clamping down on shadow banking and closing many “grey” financing channels for real estate firms.
For many highly leveraged developers, there are already signs of increasing caution as exemplified by a surge in failed land auctions due to tight liquidity and thinning margins.
New construction starts measured by floor area, an indicator of developers’ expansion appetite, rose 20.3 percent in September from a year earlier, compared with a 26.6 percent gain in August, Reuters calculations showed.
That’s against the backdrop of seemingly looser funding conditions for China’s real estate developers, who raised 12.2 trillion yuan ($1.76 trillion) in the first nine months, up 7.8 percent from the same period a year earlier, the NBS said.
The growth rate compared with a 6.9 percent increase in January-August period.
“Many developers will face lots of maturing debt by the end of this year, and there are perceived risks in the economy, so they will be more cautious,” Huang said.
China’s housing ministry is considering putting an end to the pre-sale system that developers use to secure capital quickly, in an effort to crack down on financial risks in the property sector.
China’s home prices held up well in August, defying property curbs. But analysts expect additional regulatory tightening and slowing economic growth will soon take the wind out of the property market’s sails.
The National Bureau of Statistics will release September official home price data on Saturday.