NSRGY Nestle SA (PK)

By Saabira Chaudhuri and Brian Blackstone 

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 (September 21, 2018).

Nestlé SA is exploring strategic options for its skin-health unit, a business analysts say could fetch $4.1 billion, its latest move to narrow its focus to food and beverages as it faces pressure from an activist investor.

The Swiss consumer goods giant Thursday didn't specifically say the unit, which generated 2017 revenue of 2.7 billion Swiss francs ($2.79 billion), was up for sale but such reviews often end with a disposal. Nestlé recently sold its U.S. confectionery and Gerber life-insurance businesses after similar reviews.

Nestlé didn't disclose an estimated value for the skin-health division, which includes face-care products Cetaphil and Proactiv, but it could fetch about 4 billion francs, according to Jefferies analyst Martin Deboo. Mr. Deboo said the review was significant because it showed a "willingness to slay sacred cows."

The move comes as Nestlé faces pressure from activist investor Daniel Loeb who took a $3.5 billion stake in the company last year and has made a string of demands, including that it sell its stake in L'Oréal SA and the skin-health arm.

The review is likely to close the door on a business that Nestlé just four years ago touted as one of its most promising. Nestlé established its skin-health unit in 2014 after taking full control of Galderma, which added acne and skin-cancer treatment 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 fit into Nestlé's broader business. Nestlé had until now worked to fix problems at its skin-health business, which suffered after investing aggressively in consumer skin-care products and as patents on prescription products expired.

But Thursday, Nestlé said it had decided the unit's growth opportunities "lie increasingly outside the group's strategic scope." It expects the review to be completed by mid-2019.

Nestlé generated nearly 90 billion francs of sales last year but is shuffling its huge portfolio of products, ranging from Maggi noodles to Purina pet food and DiGiorno frozen pizza, to combat slowing growth. Chief Executive Mark Schneider had committed to shuffling 10% of Nestlé's portfolio but Thursday's announcement goes 3% above that said Mr. Deboo.

Like other consumer-goods companies, Nestlé has struggled with changing consumer tastes that favor local, organically produced food and difficulty in raising its prices amid a low-inflation environment. Mr. Schneider hopes that by narrowing its focus to fast-growing parts of its business including coffee, bottled water and pet food, he can lift sales growth, which last year weakened to its slowest pace since at least the mid-1990s.

On Monday, Nestlé said it would sell its Gerber Life Insurance unit to Western & Southern Financial Group for $1.55 billion in cash. In January, it sold its U.S. confectionery business -- which includes Butterfinger and Baby Ruth candy bars -- to Italian candy maker Ferrero International SA for $2.8 billion in cash.

Mr. Loeb, since taking his stake, has been vocal in criticizing Nestlé, noting just half its sales comes from the businesses Mr. Schneider has said are key for growth: coffee, petcare, water and infant nutrition. He said Nestlé could rid itself of frozen food, ice cream, packaged meats, pasta and peanut milk in addition to other assets.

"We expect Nestlé to further divest nonstrategic, underperforming assets," said analysts at Vontobel, in reaction to Thursday's announcement on skin health.

Meanwhile, Nestlé has made some splashy acquisitions, particularly in coffee. In May, it bought the rights to market and sell Starbucks coffee and tea products in grocery and retail stores for more than $7 billion. Last year, Nestlé bought a majority stake in U.S. premium coffee chain Blue Bottle.

Alberto Delclaux contributed to this article.

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and Brian Blackstone at brian.blackstone@wsj.com

(END) Dow Jones Newswires

September 21, 2018 02:47 ET (06:47 GMT)

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