Swiss food group Nestle is selling an 8 per cent stake in L’Oreal to the French cosmetics firm for €6.5 billion, loosening its 40-year partnership and allowing both firms to boost earnings per share. However, Nestle said yesterday it remained committed to the maker of Garnier shampoo and Lancome creams for the “long haul”, dampening speculation it might sell its remaining 23 per cent stake 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.

Yesterday afternoon L’Oreal shares, which had leapt on Monday on speculation of a larger stake purchase, were down 3.6 per cent at €24.4. Shares in Nestle were down 1 per cent 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.”

However, asked if Nestle would consider selling another tranche of L’Oreal shares, Mr 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 of her stake to Nestle for fear L’Oreal would be nationalised if socialists came to power. Under their pact Nestle and Ms Bettencourt promised not to sell their stakes without first offering them to the other.

With that agreement due to expire on April 29th, 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 5 per cent. 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 per cent of its shares over an 18-month period. – (Reuters)