Speculation over Nestle bid for L’Oreal boosts share prices

By Simon Pitman

- Last updated on GMT

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Speculation that Nestle is looking to up its investment in L’Oreal to a majority stake has pushed share prices to a two year high.

The source of the speculation is a story in the UK newspaper The Daily Telegraph, which claims that Nestle is in talks to try and buy up the 31 per cent stake Lilliane Bettencourt still owns in the business.

Bettencourt inherited the stake in the business through her father who established the L’Oreal name in 1909. She is the principle shareholder in the company and has an estimated fortune in excess of €10bn, making her the richest woman in Europe.

Report says formal offer to come

According to the report in the Telegraph, the talks between Nestle and Bettencourt have been ‘informal’, but states that financial traders are under the impression that Nestle will be asked to put a formal offer in writing before Bettencourt makes a final decision.

When the news broke on Monday, share prices rose to a intra-day high of €80.51, the highest rate since April 2008. The share price slipped in more recent trading and it is currently priced at €78.83.

However, financial analysts have said that if such discussions are taking place, they may contravene an existing shareholder pact which means that Nestle cannot increase its investment in the business above its current 30 per cent share that it already holds in the business.

Nestle may not be allowed to increase stake

The pact stipulates that the Swiss food giant can only increase its stake in the business six months after the death of Bettencourt.

Nestle originally acquired a 26.4 per cent stake in L’Oreal back in 2004 and subsequently increased the investment to 30 per cent. In April 2009, the two parties released a statement to say that they would continue with the current 'status quo', indicating that Nestle did not want to increase its stake.

There is very little overlap between Nestle and L’Oreal although opportunities on the boundary between cosmetics and food – the beauty foods category - are being explored through the joint venture Laboratoires INNEOV.

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