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Body Shop catches eye of French firm L'Oreal

Written by: Staff

LONDON, Feb 23 (Reuters) Shares in Body Shop International Plc reached a 14-year high on Thursday after L'Oreal SA, the world's largest beauty company, said it might bid for the UK firm, known for its ethically sourced products.

The French company which makes Ambre Solaire sun cream and Lancome lipsticks said it is in the early stages of considering a cash bid for Body Shop, sending the shares to a high of 280p.

By 1245 GMT (1815 IST) the stock was up 11 per cent at 274p, valuing the group at 534 million pounds (7 million).

''L'Oreal's management is continually evaluating a wide range of strategic alternatives that may add value to its shareholders including a possible offer for Body Shop,'' L'Oreal said in a statement to the London Stock Exchange.

''Any offer, if made, is likely to be solely in cash.

However, no decision has been made regarding any offer, L'Oreal's board has not been consulted and no approach has been made to Body Shop.'' Body Shop, caught unawares, had no immediate comment to make. Its shares rose 10.5 per cent on Wednesday and the firm said it knew of no reason for the share price move.

FOUNDERS KEY TO DEAL The founding Roddick family own around 19 per cent of Body Shop and have already indicated their willingness to sell by reducing their shareholding over the last 12-18 months.

Co-founder Iain McGlinn's shareholding takes their total to around 40 per cent, the company said.

The Roddicks started the business from a small Brighton shop in 1976 selling toiletries made from natural raw ingredients sourced from the developing world in recycled packaging.

The company, a huge success in the 1980s, fell from favour after other retailers jumped on the bandwagon and it made a mess of trying to expand into the United States. It is now back on its feet with more than 2,000 stores in 53 countries but issued a profit warning in January after weaker-than-expected sales.

Analyst Richard Ratner at Seymour Pierce advises holding the stock. He thinks the company could be bought for 280-300p a share. Ratner's estimated take-out price represents a multiple of around 20 times estimated 2006/07 earnings, he said.

Steve Davies, analyst at Numis, advises taking advantage of the spike in the share price to top-slice holdings, pointing out that instances of major manufacturers buying retail businesses are rare.

''We wonder how the Boots and Superdrugs of this world would feel about stocking L'Oreal products on their shelves if the French company also owned one of their high street rivals,'' Davies said.

Shares in L'Oreal were up 0.9 per cent at 75.20 euros, valuing the group at 49.01 billion euros.

The incoming chief executive of L'Oreal, Jean-Paul Agon, said earlier this month the company was looking for acquisitions to accelerate growth. He said pursuing growth would be the number one priority of the firm.


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