Case 3

Question 1

The Nestle Group would like to partially list one of its largest non-food holdings, Alcon, for several reasons. Nestlé’s top executives would like to discover the true valuation for each of the company’s holdings on a separate basis. Up until now, Nestlé’s EBITDA figure represented Nestlé as a group, not independent of its non-food holdings. While this measure was comparable with others in the industry, the executives felt that it was not truly representative of either Nestlé or Alcon. Although small in comparison to Nestlé, Alcon’s growth and profitability had outpaced the Nestlé Group as a whole and, thus, could possibly skew investors’ true valuation of both companies. By listing Alcon, the executives believe that there would be no better way to shed Alcon of its buried position under Nestlé’s food and beverage division. This way, the market can naturally decide the value of Nestlé amongst the expansive food and beverage industry and Alcon amongst the niche ophthalmology industry.
At the time of this debate, Nestlé was trading at a discount relative to other similar corporations in the food and beverage industry. The executives credited this to the fact that the non-food divisions of Nestlé, such as Alcon and L’Oreal, were incorporated in Nestlé’s food and beverage market valuation. Listing Alcon would therefore force analysts to break down Nestlé into its divisions and allow the food and beverage division to stand on its own. Once the executives were able to see the true values of each division, they could then compare them to competitors. This comparison would also allow management a better view of the EBITDA differences amongst their competitors in each respective industry, and account for those differences with much more ease. Alcon would be able to flourish by being recognized properly among investors and consumers
Executives also