Dive Brief:
- Nestlé's board of directors has decided to "explore strategic options" for its skin health unit, with the review scheduled to be done by the middle of next year. The move is part of sharpening the Swiss company's focus on food, beverage and nutritional health products, Nestlé said in a release.
- The unit's brands include Cetaphil and Proactiv, along with Restylane wrinkle fillers and prescription dermatology treatments. According to Reuters, it posted sales of nearly $2.8 billion in 2017, which was about 3% of the company's total.
- Nestlé didn't put a specific value on its skin health unit, and analysts estimates vary from $4.1 billion to $6.8 billion. According to the company, the unit employs more than 5,000 people across 40 countries.
Dive Insight:
A strategic review of Nestlé's skin health unit will likely lead to a sale since previous reviews of the company's U.S. confectionery business and its Gerber Life Insurance Co. both resulted in divestments. Those cash deals — to Italy's Ferrero Group for $2.8 billion and Western & Southern Financial Group for $1.55 billion — are major capital infusions the Swiss company could use for other acquisitions, research and development and/or advertising and marketing on behalf of its food, beverage and nutritional health businesses.
Chances are this latest move on Nestlé's part is another attempt by CEO Mark Schneider to appease activist investor Daniel Loeb, whose Third Point hedge fund bought about 40 million shares of the Swiss company last year for approximately $3.5 billion. That makes Third Point the sixth-largest shareholder in Nestlé, according to The New York Times, which was citing Standard & Poor's Global Market Intelligence.
Since making the investment, Loeb has continued to pressure Nestlé to change its structure, pace and direction in order to maximize profits and improve its overall financial health. While Nestlé's management has responded by selling its U.S. confectionary business and the Gerber life insurance business, it also paid $7.15 billion this spring for the right to sell Starbucks coffee and drinks in retail outlets around the world. Last year, the company bought a majority stake in Blue Bottle Coffee and purchased Chameleon Cold-Brew. Those actions further solidified the company's coffee portfolio, which already included Taster's Choice, Nescafe and Nespresso.
Despite all the M&A activity and now with another strategic review coming, Loeb has clearly not been satisfied with Nestlé's progress to date. He wants the company to reorganize itself into three main units — beverages, nutrition and groceries, each with its own CEO, regional structure and marketing function — and to divest its confectionery, ice cream and frozen foods businesses. Loeb would also like Nestlé to sell its approximately 23% share of L'Oréal, the French cosmetics maker, which, according to Bloomberg, is worth $30.4 billion.
In a July 1 letter to Nestlé's board, Loeb wrote that while the company had taken some steps in response to suggestions, the pace was too modest and the changes too small. "We are concerned that Nestlé does not fully appreciate the rapidly occurring shifts in consumer behavior that threaten its future," Loeb's letter stated, according to The New York Times.
Those shifts seem to be occurring at a faster clip, and it's hard for CPG companies to keep on top of them. It was just four years ago, for example, that Nestlé said the skin care segment was one of its most promising businesses and a way to help boost sagging sales in some core food areas. However, after increasingly lackluster sales and rising costs, Nestlé decided to close a factory in northern Switzerland where sun cream and dry skin products were produced and move those tasks to other facilities. Still, the company has managed to maintain dominant positions in pet care, bottled water, frozen meals, infant food and ice cream, so those may be on safer ground in a continuing realignment effort.
Some observers say one potential buyer for Nestlé's skin health unit could be L'Oréal. According to Bloomberg, the French company bought three skin care brands for $1.3 billion last year, making it "a natural acquirer of Nestle skin health." If such a purchase comes to pass, it will be interesting to see what Daniel Loeb has to say about it.