L’Oreal shares climb on talk that Nestle stake is in play

Shares in beauty group L’Oreal surged the most in seven years on speculation that the death of the founding family’s matriarch, Liliane Bettencourt, could clear up the cosmetics maker’s ownership through a takeover or a buyback.

L’Oreal shares climb on talk that Nestle stake is in play

Ms Bettencourt’s death raises questions about the stake Nestle has held in the French company for more than four decades.

Her passing makes it more likely that the Swiss food giant will someday sell that 23%, worth about €23.5bn, to L’Oreal, according to analysts. Another possibility is that L’Oreal attracts a takeover bid.

“Speculation will now inevitably be reignited around Nestle’s intentions towards its L’Oreal stake,” Martin Deboo, an analyst at Jefferies, said in a report.

“Much will depend on the intentions of the Bettencourt enfants.” L’Oreal climbed 2.4% in Paris trade after rising as much as 6.7% earlier.

Nestle has faced calls to sell its stake in L’Oreal, most recently from activist shareholder Dan Loeb, who revealed a stake of about 1.3% in the Swiss food company in June.

Nestle chief executive Mark Schneider told Bloomberg Television in February that the L’Oreal stake is “highly strategic” and there is no short-term urgency to alter the relationship.

“It is with great sadness that we received the news of the passing away of Mrs Liliane Bettencourt,” a Nestle spokeswoman said.

“We express our most sincere condolences and deepest sympathy to Mrs Bettencourt’s family and to all at L’Oreal at this difficult moment. As you can imagine, this is not the right time to make any further comment.”

Analysts consider two scenarios most probable: Eeither the status quo, or L’Oreal buying back the stock from Nestle, possibly financing that through the sale of its 9.4% stake in French drugmaker Sanofi.

Another possibility that UBS mentions is Nestle bidding for the rest of L’Oreal, though that would provoke more uproar from shareholders like Mr Loeb and would be a reversal after the food company cut its stake in 2014.

Under the terms of the shareholder pact, neither Nestle nor the Bettencourt family can buy more L’Oreal shares until six months after Ms Bettencourt’s death.

As the pact ends, the Meyers-Bettencourt family could also decide to sell their stake to L’Oreal, or the cosmetics maker could swap the Sanofi stake for the shares Nestle owns, Morgan Stanley analyst Richard Taylor wrote.

A judge in 2011 assigned Ms Bettencourt’s daughter, Francoise Bettencourt Meyers, and two grandsons as guardians over her interests. She and her husband and one of her sons sit on L’Oreal’s board. The family’s 26% stake makes it L’Oreal’s largest shareholder.

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