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PARIS — Might Nestlé acquire L’Oréal in 2009?

This story first appeared in the December 12, 2008 issue of WWD.  Subscribe Today.

Today, the Swiss food group has a 28.9 percent stake in the French beauty giant, which is also 30 percent owned by Liliane Bettencourt, the 86-year-old daughter of L’Oréal’s founder, Eugene Schueller. Under terms of the current shareholder agreement, Nestlé is free to sell its holding in L’Oréal starting April 29, 2009, but cannot take a majority share in the firm unless Bettencourt passes away earlier, and, in that case, only six months after. Post-April 29, 2009, Nestlé does not have the right to acquire L’Oréal unless she gives her approval, and that six-month grace period remains in the event of her death.

Market speculation heated up this April that Nestlé will acquire L’Oréal following the Swiss food giant’s announcement it would sell a 24.85 percent stake in its Alcon eye care business to health care company Novartis, with an option to sell its remaining 52 percent stake in 2010. The transaction gave Nestlé an initial $11 billion cash injection. At the time, Nestlé stated the proceeds would in part “support opportunities for profitable growth in line with the group’s nutrition, health and wellness orientation.”

Some believe Nestlé’s growth through acquisition is a prime possibility.

“I think it is the most logical scenario,” said Chicuong Dang, equity analyst at Richelieu Finance, who explained that following Nestlé’s sale of its Alcon holding, it will have a significant amount of cash to invest, and that L’Oréal would help bulk up its health and personal care holdings.

“Nestlé wants to buy L’Oréal,” said another analyst, speaking under the condition of anonymity.

Yet some think such a deal makes little sense. Patrick Hasenboehler, equity analyst at Sarasin Equity Research, for instance, believes the two firms already have obtained all of their synergy potential.

Of course, Nestlé could also opt to buy a company in a non-beauty sector, such as confectionery, or none at all. But should Nestlé’s holding in L’Oréal be raised to more than one-third, it would be obliged to launch a takeover bid, according to French law.

A Nestlé spokesman had no comment on the L’Oréal speculation.

L’Oréal is the world’s largest beauty firm, with revenues in 2007 of 17.06 billion euros, or $23.39 billion at average exchange.