* L'Oreal buys 8 pct stake from Nestle for 6.5 bln euros
* Nestle stake cut to 23 pct, but says in for long haul
* Deal will boost L'Oreal EPS, Nestle to do share buyback
* Nestle also gets full control of skincare JV
* L'Oreal shares fall 3.6 pct, Nestle down 1 pct
(Adds fund manager, analyst quotes, details, updates shares)
By Astrid Wendlandt and Pascale Denis
PARIS, Feb 11 Swiss food group Nestle
is selling an 8 percent stake in L'Oreal to the French
cosmetics firm for 6.5 billion euros ($9 billion), loosening
their 40-year partnership and allowing both firms to boost
earnings per share.
However, Nestle said on Tuesday it remained committed to the
maker of Garnier shampoo and Lancome creams for the "long haul",
dampening speculation it might sell its remaining 23 percent
stake anytime soon.
"This transaction is a bit of a let down," Liberum Capital
analysts said in a note, referring to media reports that L'Oreal
might buy a larger proportion or even all of Nestle's stake.
At 1425 GMT L'Oreal shares, which had leapt on Monday on
speculation of a larger stake purchase, were down 3.6 percent at
124.4 euros. Shares in Nestle, home to Gerber babyfood and Kit
Kat chocolate bars, were down 1 percent at 66.9 Swiss francs.
Nestle Chairman Peter Brabeck told reporters the Swiss firm
planned to stay a major investor in L'Oreal, which on Monday
posted forecast-beating quarterly sales.
"I do not see this as a first step of leaving L'Oreal ...
not at all," he said. "We are in here for the long haul".
However, asked if Nestle would consider selling another
tranche of L'Oreal shares, Brabeck said: "We shall see."
The Swiss firm has been a major shareholder in L'Oreal since
1974, when L'Oreal heiress Liliane Bettencourt, now the world's
richest woman, sold around half her stake to Nestle for fear
L'Oreal would be nationalised if Socialists came to power.
Under their pact, Nestle and Bettencourt promised not to
sell their stakes without first offering them to the other.
With that agreement due to expire on April 29, 2014,
speculation had been mounting the two firms would strike a deal
before Nestle became free to sell its stake elsewhere.
L'Oreal said it would cancel all the shares it buys from
Nestle, boosting its earnings per share by more than 5 percent.
But it will have to wait to buy more shares - if it is
offered the opportunity - as French rules mean it cannot cancel
more than 10 percent of its shares over an 18 month period.
"We'll leave it at that for now," L'Oreal Chief Executive
Jean-Paul Agon told reporters.
Nestle said it would use cash proceeds from the deal to buy
back its shares, without disclosing details.
L'Oreal will pay for the deal with 3.4 billion euros in cash
and by selling to Nestle its 50 percent stake in their Galderma
dermatology venture for 3.1 billion euros, including about 500
million of debt, which Nestle will pay for in L'Oreal shares.
One of the highlights of the deal for Nestle was the Swiss
group's commitment to grow its dermatology business as part of
its drive to focus on health, wellness and nutrition.
Nestle will create a unit called Nestle Skin Health to
include Galderma, which makes a rival to Allergan's
Botox called Azzalure, and an existing infant skin care unit.
This division "shows which direction Nestle plans to take,"
said Laurent Dobler, manager of the Renaissance Europe fund with
more than 1 billion euros under management. "The dermatology
market is fragmented but promising."
Nestle is paying a multiple of 26 times Galderma's 2013
operating profit, which some analysts said was not cheap
considering the venture's sales growth slowed to 3.9 percent in
2013 from 5.9 percent in 2012.
While some analysts were disappointed Nestle did not sell a
larger stake in L'Oreal to fund a bigger buyback, Bernstein's
Andrew Wood said ongoing relations between the two firms kept
open options for future nutrition-cosmetics ventures.
"We note that the Inneov (nutri-cosmetics) joint venture
between Nestle and L'Oreal was not included in today's
transaction, and remains a crossover area," he said.
L'Oreal said it could fund the deal without selling its 9
percent stake in drugmaker Sanofi, worth $12 billion,
dampening speculation Sanofi might get a chance to buy back the
stake and boost its own earnings per share.
The deal will cut Nestle's holding in L'Oreal to 23.29
percent from 29.4 percent, while the Bettencourt Meyers family's
stake in L'Oreal will rise from 30.6 percent to 33.31 percent.
The deal is expected to close in the first half of this year.
Explaining the deal, L'Oreal's Agon said: "Nestle's stake
reduction had to allow it to remain a strategic shareholder ...
while making sure that the Bettencourt family stayed below the
33.33 percent level." Beyond that level, the family would have
to make an offer for the rest of L'Oreal's share capital.
Some analysts said it was possible the Bettencourts could
obtain a waiver from regulators from having to make an offer for
the rest of L'Oreal if Nestle decided to sell more of its stake
to the French firm and the shares were cancelled - which would
raise the Bettencourts' stake beyond 33.33 percent.
Marco Sormani at Varenne Capital Partners, which has 200
million euros under management including shares in L'Oreal, said
buying back its shares made sense for the cosmetics group.
"Considering the low-interest rate environment, you make much
better use of your cash buying back shares and cancelling them
than letting the cash sit on your balance sheet," he said.
L'Oreal had net cash of 2.2 billion euros at the end of
December and estimated it would have net debt of 700 million
euros after the transaction.
Nestle was advised by Rothschild and L'Oreal by BNP Paribas
($1 = 0.7327 euros)
(Additional reporting by Martinne Geller in London and Silke
Koltrowitz in Zurich,; Editing by Mark Potter)