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LONDON-Will they or won't they? That's the question on everyone's lips in the cosmetics world as Nestle's 20-year agreement with the French government not to boost its stake in French powerhouse L'Oreal ends this month.

Since it takes two to tango, Nestle may have to sit out this dance, because its would-be partner, 71-year-old heiress Liliane Bettencourt, isn't interested.

The daughter of L'Oreal's founder, Mrs. Bettencourt owns 51% of Gesparal, the holding company controlling 51% of L'Oreal. To increase its share, Nestle would have to buy from Mrs. Bettencourt, who recently reaffirmed her intent to retain control during her lifetime. It isn't known what provisions, if any, have been made for her shares after her death. Most industry experts predict Nestle will wait until then to proceed.

Nestle bought its 49% of Gesparal shares from Mrs. Bettencourt in 1974, giving her 5% of Nestle in exchange. Each has first refusal rights on the other.

Analysts believe Nestle is determined to eventually win L'Oreal.

"I think Nestle's long-term ambition is, without a doubt, to consolidate L'Oreal. That's why they first took a stake in Gesparal," said John Campbell, European food analyst at Paribas, Paris.

"If the politically sensitive way to handle it, both in terms of the Bettencourt family and the French government, is the softly, softly approach, then Nestle will be prepared to do it," predicted Mr. Campbell.

He added that in his own conversations with the company, "they don't see 1994 as a magical year."

Nestle has good reason to covet L'Oreal. Rivals Unilever and Procter & Gamble Co. have already entered the lucrative personal-care business. Unilever now ranks as the world's No. 2 personal-care group behind L'Oreal. And in the last decade, P&G also has moved into personal care with its initial purchase of Richardson Vicks-owner of the Oil of Olay brand-followed by subsequent health & beauty acquisitions in the U.S. and Europe.

Nestle Chairman Helmut Maucher sits on the L'Oreal board, while L'Oreal board member Jean-Pierre Meyers is on Nestle's board. Nestle already owns a majority stake in Cosmair in the U.S. and Canada, for example, but L'Oreal runs the business in both countries.

Should a combination occur, McCann-Erickson Worldwide and FCB Publicis, which work with both Nestle and L'Oreal, could benefit. Nestle also uses the Ogilvy & Mather, Lintas Worldwide, and J. Walter Thompson Co. agency networks.

Nestle wouldn't comment directly on its plans for L'Oreal. But analysts believe that even once it takes control, Nestle won't interfere.

"The management of L'Oreal would remain as it is today, completely independent," said a Nestle spokesman in Vevey, Switzerland. Gaining control of L'Oreal "wouldn't mean that we are sudden experts in cosmetics."

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