Swiss food group Nestlé is selling an eight per cent stake in L'Oréal back to the French cosmetics firm for 6.5 billion euros ($9.8 billion Cdn).

Nestlé, maker of Kit Kat and Gerber baby food, and the Bettencourt family have owned nearly equal stakes in L'Oréal since 1974, when L'Oréal owner Liliane Bettencourt sought an outside investor because she feared a nationalization of the company.

But Nestlé is in the midst of a drive to sell underperforming businesses and refocus on nutrition, health and wellness.

It will still own 23 per cent of L'Oréal after the sale, and many market watchers had expected it to sell off more of its stake.

However, Nestlé chairman Peter Brabeck-Letmathe told reporters on Tuesday that his firm planned to stay a major investor in the maker of Lancome, Garnier and La Roche-Posay brand beauty products, among many others.

"I do not see this as a first step of leaving L'Oréal ... not at all," he said. "We are in here for the long haul."

Nestlé acquires Galderma

L'Oréal is paying for its stake in part by selling its half of the skin-care firm Galderma, a joint venture with Nestlé, to its Swiss partner. The deal will add acne and skin-cancer treatments to Nestlé's health care product line, which fits into its new strategic direction.

"The future of skin health and dermatology is a buoyant market globally," Nestlé CEO Paul Bulcke said.

L'Oréal said it will buy back 48.5 million of its own shares and then cancel them. The deal does not include the sale of its nine per cent stake in drugmaker Sanofi, worth $12 billion, as many traders had expected.

Nestlé and the Bettencourt family have promised not to sell their stakes without first offering them to the other. The number of seats Nestlé holds on the L'Oréal board drops from three to two as a result of the deal.

With files from Reuters