Nestlé shares hit a record high in Zurich on Wednesday after the Swiss food giant said it would raise about €8.9 billion by selling part of its stake in L’Oreal.

Shares in the owner of Nespresso coffee pods and Maggi broths rose as much as 1.97 per cent to 124.34 Swiss francs in morning trade following the announcement, which came after markets closed on Tuesday.

Nestlé said it would reduce its stake in the French cosmetics giant to 20.1 per cent from 23.3 per cent, and increase share buybacks with the proceeds.

While the move was not “a major surprise” and was “fully aligned with strategic comments made by the company”, it was “a positive signal”, said Baader Helvea analyst Andreas von Arx.

The current buyback programme, during which Nestlé has already bought back 12.7 billion Swiss francs (€11.5 billion) of its shares, will be replaced by a new programme in which it plans to purchase 20 billion francs of shares by 2024, 10 billion in 2022 alone. 

The current buyback programme, during which Nestlé has already bought back 12.7 billion Swiss francs (€11.5bn) of its shares, will be replaced by a new programme in which it plans to purchase 20 billion francs of shares by 2024, 10 billion in 2022 alone

Nestlé bought a stake in L’Oreal in 1974 at the request of the Bettencourt family, who feared a possible nationalisation if the left came to power in France. The shareholder agreement that bound them since then – and which was also an impediment to any hostile takeover – had been regularly renewed.

But in 2018, six months after the death of Liliane Bettencourt and as activist fund Third Point was pressing Nestlé to sell its stake and reinvest it in projects to fuel growth, the two groups agreed not to renew their pact.

Since 1974, this stake has generated an annualised return of 11 per cent for Nestlé, excluding dividends, said Jean-Philippe Bertschy, an analyst at Vontobel. Still, “the proposed transaction is smart,” he wrote in a market commentary, pointing to opportunities it opens up for Nestlé in terms of takeovers and boosting returns for its shareholders. 

Martin Deboo, an analyst at Jefferies, described the move as a “good business for both” companies, but questioned whether it signalled “the start of an amicable divorce”, which would see Nestlé gradually divest from L’Oreal over the next few years.