PARIS (Reuters) - French cosmetics and luxury goods group L'Oreal (OREP.PA) has started exclusive talks to sell The Body Shop business to Brazilian make-up company Natura Cosmeticos (NATU3.SA) in a possible 1 billion euros ($1.1 billion) deal.
Earlier this year, L'Oreal had announced it was reviewing its strategy for The Body Shop, which it bought for 652 million pounds in 2006, and the sale of the business had attracted a wide range of bidders.
L'Oreal said on Friday it had received a firm offer from Natura Cosmeticos, and the proposed deal put an enterprise value (equity plus debt) of 1 billion euros on the four decades old beauty brand - an innovator in the mass marketing of cosmetics made without animal testing and with natural ingredients.
Founded in 1976 by British entrepreneur Anita Roddick, The Body Shop was a pioneer in its field but had since fallen victim to increased competition from newcomers offering similar products based on natural ingredients with no animal testing.
L'Oreal shares were up 0.7 percent in late session trading, as investors welcomed progress toward a deal and the price tag.
"It's a good move, given that The Body Shop had been one of the least profitable parts of the L'Oreal business," said Roche Brune Asset Management fund manager Gregoire Laverne.
Keren Finance fund manager Gregory Moore said the price tag had pleased L'Oreal investors, since earlier reports had stated it could be sold for around 800 million euros.
"The stock has reacted well to the news, because there were some people who thought it could be sold for less," said Moore, whose firm owns L'Oreal shares in its portfolio.
Shares in Natura fell 2.4 percent on the Brazil stock exchange, with Natura saying it would take on loans to finance the deal.
Natura chief executive Joao Paulo Ferreira said The Body Shop would fit in well with Natura's similar businesses, such as its "Aesop" brand.
L'Oreal shares are up around 10 percent so far in 2017, broadly in line with the CAC-40, with the stock having touched a record high earlier this month.
Additional reporting by Gabriela Mello and Bruno Federowski in Sao Paulo; Reporting by Sudip Kar-Gupta; Editing by Andrew Callus and Mark Potter