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Jun 032009 Gossip

Nestlé has confirmed it would be in a position to bid for another 30% stake in L’Oréal when its lock-up agreement with France’s Bettencourt family, also part-owners of L’Oréal, ends later this month. Nestlè says it’s unlikely it is to make a quick decision about whether to buy or sell. The Swiss food giant, which has owned its sizeable chunk of L’Oréal stock since 1974, has first refusal if the Bettencourt family do eventually decide to sell. So what could happen? Many analysts feel Nestlé should keep its head down with itsstaple business of ice cream, cakes, breakfast cereal and pet food rather than budy itself with hair and skincare. Buying deeper into L’Oréal would also be problematic for major Nestlé shareholders. Sanford Bernstein analyst Eric Scher agrees: “Nestlé would be taking on more of a troubled business and transplant-ing it deeper into their own business. It just wouldn’t work”. However, a more realistic scenario is for Nestlé to gradually bleed off its L’Oréal stake over time, though Scher says he doesn’t think this will happen any time soon. “Nestlé has been invested in L’Oréal a long time and I still expect them to be major investors in five years time”. Of course, Nestlé could attempt to sell it’s own L’Oréal stake outright but few could afford the ticket price. Realistically, the only operator who could absorb L’Oréal more or less successfully would be P&G said one City analyst. Meanwhile both Nestlé and the Bettencourt family say they will continue to act “in concert towards the L’Oréal company beyond 29 April 2009”. L’Oréal certainly remains vulnerable currently due to a rash of recent sales warnings. Just before Cosmetics International went to press, its boss Jean-Paul Agon abandoned his previously agreed stock options package – a sign that L’Oréal is under some shareholder pressure, as well as some impatience from a French government fed up with excessive boardroom when its domestic economy is struggling amid the global recession. Simmering in the background meanwhile is the matter of a feuding mother and daughter at the centre of L’Oréal’s own operations – a potentially sticky situation. In a separate development, it is rumoured Nestlé is preparing a swoop buy on US-based nutritional maker NBTY.
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