L'Oreal being controlled by two large shareholders has helped insulate it from unsolicited takeover bids like the one Unilever received this year which rippled through a packaged goods sector battling slowing growth.
Any decline in the influence of the two big investors could make L'Oreal more vulnerable, an industry banker said on Friday, but noted that its $117 billion market value limited any pool of suitors.
L'Oreal is seen as a willing and able buyer of Nestle's stake, and could use its 9 percent holding in drugmaker Sanofi , worth about 9.5 billion euros, to fund it. Sanofi shares were up just under 1 percent.
Jefferies estimates that if L'Oreal bought back Nestle's entire stake in financial year 2018, it would end up with net debt 2.9 times EBITDA, which it called affordable.
Earnings per share would rise 10 percent in 2018, and nearly 20 percent in 2019, they added.
However, buying all the shares and canceling them would create complexities.
A reduced share count would lift the Bettencourts' ownership to 43 percent, a level that could force them to launch a takeover bid for the company under French rules, although there are exemptions.
One way around that would be for Nestle to do an exchange offer, as suggested by Third Point, in which it would give its shareholders L'Oreal shares in exchange for their Nestle ones.
Third Point declined to comment on Friday.
This article was provided by Reuters.