In an official statement L'Oreal confirmed that it was considering a wide range of strategic alternatives that includes an offer to buy the Body Shop, although it said no formal dialogue has taken place at this stage.
The statement said, "L'Oreal's management is continually evaluating a wide range of strategic alternatives that may add value to its shareholders inlcuding a possible offer for Body Shop. Any offer, if made, is likely to be solely for cash."
The Body Shop has confirmed that it had not received any formal proposal from L'Oreal.
Talk of the possible buy-out resulted in Body Shop shares jumping 7 per cent on the London Stock Exchange at the close of business, last Fridy, suggesting that the possible buy-out looks like a solid move from a financial point of view.
Meanwhile, the Financial Mail has reported that rival British natural cosmetics maker is also considering a bid for Body Shop, after its chief executive Mark Constantine said he was "looking at the situation".
Although Lush is tiny in comparison to L'Oreal, analysts believe that a potential move could sit better with the company as it shares common business goals, image and positioning.
Speaking at the company's annual financial conference earlier in the month, newly appointed L'Oreal chief executive Jean-Paul Agon said that it was considering acquisitions as a means of maintaining the company's unbroken run of double digit profit growth and hinted that a new departure was not out of the question.
"External growth is not inconsistent with organic growth," said Agon at the time. "Our ambition is to return to a comparable growth target of 6 to 8 percent a year. Pursuing this growth will be our number one priority," he added.
Although he did not give any specific time frame for this ambition, the company will be looking to improve on the 4.8 per cent like-for-like sales growth during 2005, when sales topped €14.53bn.
Industry experts beleive that a Body Shop bolt-on would be a good means of bringing new growth opportunities for the world's largest personal care player. Likewise it might also bring some credence to the company's corporate image.
The Body Shop was established in England in the 1970s by husband and wife team Anita and Gordon Roddick.
It has been built up as an ethical company, sourcing natural ingredients on a fair trade bases and has moved towards a more pronounced positioning at the luxury end of the mass market in recent years.
Evidently the company's positioning, which moves it away from the mass market retailers such as Wal-Mart that L'Oreal relies so heavily upon, would open up new opportunities for the company.
But likewise the Body Shop's squeaky clean image might go a long way to help bolster L'Oreal's more main stream image.
The Body Shop has been struggling to keep one step ahead of the competition in recent years, having expanded rapidly during its hugely successful trading period in the 90s.
Now it is represented world-wide with annual sale s of £419m (€615m), but with many of the mainstream players now emulating both its image and its product portfolio, the competition has become tought.
Analyst beleive the suggested bid price for Body Shop would be in the region of 280-300p, which would value the group at £646m. Currently it has £51m in debts.
The fact that L'Oreal is considering a major move into the retail market forms part of a small but significant trend, whereby cosmetics players are spreading their risks and diversifying by moving into specialist retail.
Other examples of this include LVMH Moet Hennessy, which recently bought up the Sephora fragrance retail chain and Estee Lauder, which now owns the MAC chain of stores.