Carol Ryan

Breakingviews - Private equity could scratch Nestlé skin-care itch

06 Nov 2018

LONDON (Reuters Breakingviews) - Acne and other skin creams have had a spotty record at Nestlé, but a buyout group might do better. A unit at the world’s biggest food group that makes Botox rival Dysport may fetch at least 6 billion Swiss francs ($6 billion). Rival consumer groups may be put off by the business’s products and low margins, but they could appeal to a private equity firm. Facing pressure from activist Dan Loeb, Nestlé Chief Executive Mark Schneider announced a review of the division that his predecessor bought only four years ago. It’s been a rocky period: Nestlé underestimated patent expiries and was forced to take a 2.8 billion Swiss franc impairment last year. The unit’s EBITDA margin has fallen to 13 percent, Bernstein analysts reckon. Selling to another consumer group looks difficult. The business includes both simple over the counter and more complex prescription products. It would fit more easily into a conventional drugmaker. Antitrust issues probably rule out U.S. peer Allergan. The most likely strategic acquirer is Johnson & Johnson, but it is probably keener to acquire innovative medicines than skin creams. Buyout firms including Apax Partners and KKR are eyeing the business according to Bloomberg. Demand for beauty treatments mean private equity is dabbling with dermatology - Bain Capital, for example, bought a stake in Botox maker Hugel last year. Nestlé’s unit could deliver a private equity-style return. A deal wouldn’t come cheap. Even the lowest mooted price tag would be equivalent to around 17 times this year’s EBITDA of 362 million Swiss francs, as estimated by Bernstein analysts. That’s in line with the average deal multiple in the consumer sector since 2005. Even using debt of say six times EBITDA, a private equity buyer would need to stump up equity of 3.8 billion Swiss francs. Luckily, the business is growing, and can be spruced up. If the buyer grew sales by 5 percent a year and boosted the margin to 20 percent, EBITDA could hit 715 million Swiss francs in five years. An exit on a similar multiple would give an enterprise value of just under 12 billion Swiss francs and equity of 9.7 billion Swiss francs, representing an internal rate of return of around 20 percent, according to Breakingviews estimates. With the promise of such plump returns, Nestlé can expect plenty of suitors.

Breakingview - Tesco gives investors reason to shop elsewhere

03 Oct 2018

LONDON (Reuters Breakingviews) - Tesco is sending investors into the arms of smaller grocers. Britain’s biggest supermarket by sales is charging lower prices in its home market to fend off discounters, making it harder to hit operating margin targets. Plans to double down with the launch of a new chain of bargain grocery stores will make the challenge even harder.

Breakingviews - Unilever has itself to blame for investor revolt

25 Sep 2018

LONDON (Reuters Breakingviews) - Unilever, only has itself to blame for a growing shareholder revolt in Britain. Loose ends in its plan to pick Rotterdam over London as its global head office have left the consumer giant vulnerable.

Breakingviews - Coca-Cola pays big price for global coffee fix

31 Aug 2018

LONDON (Reuters Breakingviews) - Coca-Cola is paying a highly caffeinated price for a global coffee hit. The American soda giant has joined the battle to satisfy consumers’ thirst for java by paying $5.1 billion for Costa, the world’s second-largest chain of cafes. The deal requires Coke to order up new markets for hot drinks. Investors in seller Whitbread are the big winners.

Breakingviews - Rolls-Royce investors wisely keep the seat belt on

15 Jun 2018

LONDON (Reuters Breakingviews) - Rolls-Royce investors are keeping their seat belt fastened despite the promise of an increasingly smooth journey. The British plane engine-maker aims to generate 1 pound of free cash flow per share over the mid-term, quadruple this year’s estimate. Despite the bullish new target, shareholders don’t look to be pricing it in fully. A distant horizon and history of one-off costs suggest why.

Breakingviews - Plumber ruling leaves blockage in UK gig economy 

13 Jun 2018

LONDON (Reuters Breakingviews) - An important ruling by Britain’s Supreme Court on workers’ rights leaves many big questions about the so-called “gig economy” unanswered. The court’s decision that a self-employed plumber is entitled to workers’ rights is ominous for companies like Uber which depend on casual labour. But it offers little new guidance for dealing with technology’s impact on the way people work.

Breakingviews - Sainsbury’s shows need for new antitrust approach

02 May 2018

LONDON (Reuters Breakingviews) - J Sainsbury’s 7.3 billion pound bid for Asda shows the need for new antitrust thinking. The grocer wants Britain’s Competition and Markets Authority (CMA) to vet retail mergers in a new way. The rise of discount rivals and online shopping means it has a point. A revamp of the metrics used to ensure that shoppers have enough choice is inevitable.

Breakingviews - Sainsbury’s tries to succeed where Walmart flopped

30 Apr 2018

LONDON (Reuters Breakingviews) - J Sainsbury will try to succeed where Walmart flopped. The British grocer is buying the U.S. retail giant’s Asda subsidiary for 7.3 billion pounds in cash and stock. Even after passing on some cost savings to shoppers, Sainsbury’s could make a double-digit return on investment. That’s unless demands from competition authorities eat into the benefits.

Breakingviews - Stuffed KFC only has itself to blame

20 Feb 2018

LONDON (Reuters Breakingviews) - KFC’s penny-pinching ways have left it stuffed. The fried-chicken chain owned by Yum Brands had to close hundreds of its UK restaurants after running out of poultry. Its plan to cut costs by ditching its old food supplier for a cheaper one backfired. The cock-up shows that chasing higher margins is no sure way to feather your nest.

Breakingviews - Heineken’s number two status brings marginal costs

12 Feb 2018

LONDON (Reuters Breakingviews) - Heineken’s number two status comes with marginal costs as well as benefits. The Dutch group is one of the few global brewers still managing to boost beer volumes. However, acquisitions will weigh on its operating margins in 2018.

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