L'Oreal shares jump on Nestle stake sale hopes

PARIS Mon Feb 10, 2014 5:13am EST

PARIS Feb 10 (Reuters) - Shares in L'Oreal climbed as much as 5 percent on Monday after reports that food maker Nestle was studying options to reduce its 30 percent stake in the cosmetics group.

Investors were betting that L'Oreal could buy the stake from Nestle over time, thus boosting earnings per share.

Other options for Nestle's exit include selling the shares to the Bettencourt family, which is the largest shareholder in L'Oreal with 30.9 percent; selling on the public market; or selling to a third party.

The Swiss foods group is under pressure to make its intentions clear towards L'Oreal, its partner of 40 years, when the shareholder pact that binds them offers an exit in April at the end of a lock-up period.

Nestle, which owns brands such as Kit Kat chocolate bars and Alpo pet food, owns a 29.5 percent stake in L'Oreal and the expiry of a 10-year right of first refusal agreement with the Bettencourt family in April should make it easier for Nestle to sell, though it has said it has no urgent need to do so.

Bloomberg reported on Friday that Nestle has told L'Oreal of its intentions and the two companies have discussed the issue with banks, though no decision over the possible timing of any sale, which could take years, has been made.

Analyst Andrew Wood at brokerage Bernstein wrote in a research note that he was not fully convinced that Nestle would sell its stake, since such speculation has had been around for years, but noted "it would clearly have implications for both companies."

"By some margin, we believe option selling the stake directly to L'Oreal remains the most likely," said Wood.

Shares in Sanofi also rose as investors bet that the shift at Nestle could lead L'Oreal to sell its 9 percent stake in Sanofi, which is worth $12 billion, to finance buying back its shares from Nestle.

Sanofi Chief Executive told Reuters in a recent interview that the French drug maker was a willing buyer of the stake, calling the potential deal "very accretive".

L'Oreal shares were up 4.9 percent at 129.6 euros by 1003 GMT, having risen as high as 129.95 euros, their highest since late October.

Sanofi shares were up 1.4 percent. (Reporting by Leila Abboud; Editing by David Holmes)

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