LOREALoffer_document for TBS

7/29/2019 LOREALoffer_document for TBS

1/132

Recommended Cash Offerby

JPMorgan Cazenove Limitedon behalf of

LOreal

forThe Body Shop International PLC


2/132


3/132

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are

in any doubt as to what action you should take, you are recommended to seek your own personal financial

advice immediately from your stockbroker, bank manager, solicitor, accountant or other independent

financial adviser authorised under the Financial Services and Markets Act 2000 if you are resident in the

United Kingdom or, if not, from another appropriately authorised independent financial adviser.

If you have sold or otherwise transferred all of your The Body Shop Shares (other than pursuant to the Offer),

please send this document, the accompanying Form of Acceptance and the reply-paid envelope as soon as

possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or

transfer was effected, for onward transmission to the purchaser or transferee. However, these documents must notbe forwarded, distributed or transmitted in, into or from the United States, Australia, Canada or any other

jurisdiction where to do so would violate the laws in that jurisdiction. If you have sold or otherwise transferred

only part of your holding of The Body Shop Shares you should retain these documents.

The Loan Notes have not been, nor will they be, registered under the Exchange Act or under the securities laws

of any state or other jurisdiction of the United States; the relevant clearances have not been, and will not be,

obtained from the securities commission of any province, territory or jurisdiction of Canada; and no prospectus

has been lodged with, or registered by, the Australian Securities and Investments Commission or the Japanese

Ministry of Finance. Accordingly, unless an exemption under such act or securities laws is available or unless

otherwise determined by LOreal, and permitted by applicable law and regulation, the Loan Notes may not be

offered, sold, resold, delivered or transferred, directly or indirectly, in or into the United States, Canada, Australia

or Japan or any other jurisdiction if to do so would constitute a violation of the relevant laws of, or require

registration thereof in, such jurisdiction or to, or for the account or benefit of, a person located in the UnitedStates, Canada, Australia or Japan.

Recommended Cash Offer

by

JPMorgan Cazenove Limitedon behalf of

LOrealfor

The Body Shop International PLC

This document should be read in conjunction with the accompanying Form of Acceptance (if you hold your The

Body Shop Shares in certificated form).

Your attention is drawn to the letter from Adrian Bellamy, Chairman of The Body Shop, set out in Part I of this

document which contains The Body Shop Directors unanimous recommendation that you accept the offer.

To accept the Offer in respect of certificated The Body Shop Shares, the Form of Acceptance should be

completed, signed and returned as soon as possible and, in any event, so as to be received by Lloyds TSB

Registrars not later than 1.00 p.m. (London time) on 3 May 2006. Acceptances in respect of uncertificated The

Body Shop Shares should be made electronically through CREST so that the TTE instruction settles not later than

1.00 p.m. (London time) on 3 May 2006. If you are a CREST sponsored member you should refer to your

CREST sponsor as only your CREST sponsor will be able to send the necessary TTE instruction to CRESTCO.

The procedure for acceptance of the Offer is set out on page 4 and in paragraph 15 of Part II of this document

and, in respect of certificated The Body Shop Shares, is further described in the accompanying Form of

Acceptance.


4/132

JPMorgan Cazenove, which is authorised by the Financial Services Authority, is acting exclusively for LOreal

and no one else in connection with the Offer and will not be responsible to anyone other than LOreal for

providing the protections offered to clients of JPMorgan Cazenove or for providing advice in relation to the Offer

or any other matters referred to herein.

Merrill Lynch is acting exclusively for The Body Shop in connection with the Offer and no one else and will not

be responsible to anyone other than The Body Shop for providing the protections afforded to clients of Merrill

Lynch or for providing advice in relation to the Offer or any other matters referred to herein.

The Offer is not being made, directly or indirectly, in, into or from the United States, Australia, Canada or any

other jurisdiction where to do so would violate the laws in that jurisdiction, and the Offer is not capable of

acceptance from or within the United States, Australia, Canada or any such other jurisdiction. Accordingly,

copies of this document, the Form of Acceptance and any accompanying document are not being, and must not

be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in, into or from the United States,

Australia, Canada or any jurisdiction where to do so would violate the laws in that jurisdiction, and persons

receiving this document, the Form of Acceptance and any accompanying document (including custodians,

nominees and trustees) must not mail or otherwise distribute or send them in, into or from such jurisdictions as

doing so may invalidate any purported acceptance of the Offer. The availability of the Offer to The Body Shop

Shareholders who are not resident in the United Kingdom may be affected by the laws of the relevant

jurisdictions in which they are resident. Such persons should read paragraph 5 of Part B and paragraph 3 of

Part C (if such person holds The Body Shop Shares in certificated form) or paragraph 3 of Part D (if such personholds The Body Shop Shares in uncertificated form) of Appendix I to this document and inform themselves of,

and observe, any applicable legal or regulatory requirements of their jurisdictions.

Any person (including custodians, nominees and trustees) who would, or otherwise intends to, or may have

a contractual or legal obligation to forward this document and/or the Form of Acceptance to any

jurisdiction outside the United Kingdom, should read paragraph 5 of Part B and paragraph 3 of Part C of

Appendix I to this document before taking any action.

Under the provisions of Rule 8.3 of the City Code, if any person is, or becomes, interested (directly or

indirectly) in 1 per cent. or more of any class of relevant securities of The Body Shop, all dealings in any

relevant securities of The Body Shop (including by means of an option in respect of, or a derivative

referenced to, any such relevant securities) must be publicly disclosed by no later than 3.30 p.m. (London

time) on the London business day following the date of the relevant transaction. This requirement will continue

until the date on which the Offer becomes, or is declared, unconditional as to acceptances, lapses or is otherwise

withdrawn or on which the offer period otherwise ends. If two or more persons act together pursuant to an

agreement or understanding, whether formal or informal, to acquire an interest in relevant securities of The

Body Shop, they will be deemed to be a single person for the purpose of Rule 8.3.

Under the provisions of Rule 8.1 of the City Code, all dealings in relevant securities of The Body Shop by

LOreal or The Body Shop, or by any of their respective associates, must be disclosed by no later than

12.00 noon (London time) on the London business day following the date of the relevant transaction.

A disclosure table, giving details of the companies in whose relevant securities dealings should be

disclosed, and the number of such securities in issue, can be found on the Panels website at

www.thetakeoverpanel.org.uk.

Interests in securities arise, in summary, when a person has long economic exposure, whether conditional orabsolute, to changes in the price of securities. In particular, a person will be treated as having an interest by

virtue of the ownership or control of securities, or by virtue of any option in respect of, or derivative referenced

to, securities.

Terms in quotation marks are defined in the City Code, which can also be found on the Panels website. If you

are in any doubt as to the application of Rule 8 to you, please contact an independent financial adviser authorised

under the Financial Services and Markets Act 2000, consult the Panels website at www.thetakeoverpanel.org.uk

or contact the Panel on telephone number +44 (0) 20 7638 0129; fax +44 (0) 20 7236 7013.

This document includes certain forward-looking statements. These statements are based on the current

expectations of the management of The Body Shop and LOreal (as applicable) and are naturally subject to

uncertainty and changes in circumstances. The forward-looking statements contained herein may include

statements about the expected effects on LOreal or The Body Shop of the Offer, the expected timing and scope

of the Offer, anticipated earnings enhancements, estimated cost savings and other synergies, costs to be incurred

in achieving synergies, other strategic options and all other statements in this document other than historical

2


5/132

facts. Forward-looking statements include, without limitation, statements typically containing words such as

intends, expects, anticipates, targets, estimates and words of similar import. By their nature,

forward-looking statements involve risk and uncertainty because they relate to events and depend on

circumstances that will occur in the future. There are a number of factors that could cause actual results and

developments to differ materially from those expressed or implied by such forward-looking statements. These

factors include, but are not limited to, the satisfaction of the conditions to the Offer, and LOreals ability to

successfully integrate the operations and employees of The Body Shop, as well as additional factors, such as

changes in economic conditions, changes in the level of capital investment, success of business and operatinginitiatives and restructuring objectives, customers strategies and stability, changes in the regulatory environment,

fluctuations in interest and exchange rates, the outcome of litigation, government actions and natural phenomena

such as floods, earthquakes and hurricanes. Other unknown or unpredictable factors could cause actual results to

differ materially from those in the forward-looking statements. Neither The Body Shop nor LOreal undertakes

any obligation to update publicly or revise forward-looking statements, whether as a result of new information,

future events or otherwise, except to the extent legally required.

3


6/132

ACTION TO BE TAKEN TO ACCEPT THE OFFER

1. If you hold your The Body Shop Shares in certificated form (that is, not in CREST), complete the

Form of Acceptance in accordance with the instructions printed thereon and paragraphs 15(a) to

(d) of the letter from JPMorgan Cazenove set out in Part II of this document (see pages 19 to 21)

and return the completed Form of Acceptance (together with your share certificate(s) and any other

documents of title) by post or by hand (during normal business hours) to Lloyds TSB Registrars at

The Causeway, Worthing, West Sussex BN99 6DA or by hand only to Lloyds TSB Registrars at

Princess House, 3rd Floor, 1 Suffolk Lane, London EC4R 0AX as soon as possible and, in any

event, so as to be received by Lloyds TSB Registrars not later than 1.00 p.m. (London time) on

3 May 2006.

2. If you hold your The Body Shop Shares in CREST, you should follow the procedures set out in

paragraphs 15(e) to (g) of the letter from JPMorgan Cazenove in Part II of this document (see

pages 21 to 22).

You are advised to read this document carefully.

If you have any questions relating to this document or the completion and return of the Form of

Acceptance, please telephone Lloyds TSB Registrars, the receiving agent to the Offer, on 0870 609 2158 (or

+44 1903 276 342, if telephoning from outside the UK) between 8.30 a.m. and 6.00 p.m. Monday to Friday(excluding UK public holidays).

Please note that, for legal reasons, Lloyds TSB Registrars will only be able to provide you with information

contained in this document and will be unable to give advice on the merits of the Offer or to provide legal,

financial or taxation advice on the contents of this document.

THE FIRST CLOSING DATE OF THE OFFER IS 1.00 P.M. (LONDON TIME) ON 3 MAY 2006.

4


7/132

CONTENTS

Page

PART I Letter from the Chairman of The Body Shop.................................................................. 7

PART II Letter from JPMorgan Cazenove...................................................................................... 11

1. Introduction ............................................................................................................ 11

2. The Offer................................................................................................................ 11

3. Recommendation.................................................................................................... 12

4. Irrevocable undertakings and call option.............................................................. 12

5. The Loan Note Alternative ................................................................................... 12

6. Information relating to LOreal............................................................................. 13

7. Information relating to The Body Shop ............................................................... 14

8. Background to and reasons for the Offer............................................................. 14

9. Management and employees of The Body Shop ................................................. 15

10. The Body Shop Share Schemes............................................................................ 15

11. Financing................................................................................................................ 15

12. De-listing, compulsory acquisition and re-registration ........................................ 15

13. Taxation.................................................................................................................. 16

14. Overseas Shareholders........................................................................................... 19

15. Procedure for acceptance of the Offer.................................................................. 19

16. Settlement............................................................................................................... 22

17. Further information................................................................................................ 23

18. Action to be taken ................................................................................................. 24

APPENDICES

APPENDIX I Conditions and further terms of the Offer ....................................................................... 25

Part A: Conditions of the Offer........................................................................................ 25

Part B: Further terms of the Offer.................................................................................... 30

Part C: Form of Acceptance ............................................................................................. 41

Part D: Electronic Acceptance.......................................................................................... 45

APPENDIX II Summary of the Terms and Conditions of the Loan Notes ............................................ 48

APPENDIX III Financial information relating to The Body Shop Group................................................ 51

Part A: Financial information relating to The Body Shop Group for the three

52 week periods ended 26 February 2005, 28 February 2004 and

1 March 2003 ....................................................................................................... 51

Part B: Adoption of International Financial Reporting Standards .................................. 75

Part C: Unaudited Interim Results of The Body Shop for the 26 weeks ended

27 August 2005 .................................................................................................... 93

Part D: The Body Shop Christmas trading update .......................................................... 109

APPENDIX IV Profit Estimate Relating to The Body Shop Group ......................................................... 111

APPENDIX V Additional information ...................................................................................................... 115

APPENDIX VI Definitions.......................................................................................................................... 125

5


8/132

[THIS PAGE INTENTIONALLY LEFT BLANK]

6


9/132

PART I

Letter of Recommendation from the

Chairman of The Body Shop

Directors: Registered Office:

Adrian D. P. Bellamy (Executive Chairman) The Body Shop International PLC

Peter B. Saunders (Chief Executive Officer) Watersmead

Peggy Bruzelius (Non-Executive Director) Littlehampton

Jack Keenan (Non-Executive Director) West Sussex

Howard Mann O.B.E. (Non-Executive Director) BN17 6LS

Irene Miller (Non-Executive Director)

Dame Anita L. Roddick (Non-Executive Director) (Registered in England and Wales, No. 1284170)

T. Gordon Roddick (Non-Executive Director)

12 April 2006To The Body Shop Shareholders and, for information only, to holders of options granted under The Body Shop

Share Schemes

Dear Shareholder,

Recommended Cash Offer for The Body Shop International PLC

1. Introduction

On 17 March 2006, the boards of LOreal and The Body Shop announced that they had reached agreement on the

terms of a recommended cash offer to be made by JPMorgan Cazenove on behalf of LOr eal for the entire issued

and to be issued share capital of The Body Shop.

I am writing on behalf of the directors of The Body Shop to explain the background to the Offer and the reasons

why the directors of The Body Shop, who have been so advised by Merrill Lynch, consider the terms of the Offer

to be fair and reasonable and unanimously recommend that you accept the Offer.

The formal Offer is contained in the letter from JPMorgan Cazenove in Part II of this document and in the

accompanying Form of Acceptance. The conditions and further terms of the Offer are set out in Appendix I to

this document.

2. The Offer

The Offer for the whole of the issued and to be issued share capital of The Body Shop not already owned by

LOreal is made on the following basis:

for each The Body Shop Share 300 pence in cash

The terms of the Offer value the entire existing issued share capital of The Body Shop at approximately

652.4 million and represent a premium of approximately:

) 34.2 per cent. to The Body Shops closing mid market price of 223.5 pence on 21 February 2006

(being the last day prior to press speculation of a possible bid for The Body Shop);


(being the last business day prior to the date of LOreals announcement of a possible offer for The

Body Shop); and

) 31.5 per cent. to The Body Shops average closing mid market price of 228.2 pence for the 6 months

up to and including 21 February 2006.

In addition, The Body Shop Shareholders on the register at close of business on 24 March 2006 will be entitled to

receive a second interim dividend, of 4.4 pence per The Body Shop Share, payable on 3 July 2006, in lieu of a

7


10/132

final The Body Shop dividend for the 52 weeks to 25 February 2006. The second interim dividend is not

conditional on the Offer becoming or being declared wholly unconditional.

3. Loan Note Alternative

As an alternative to all or some of the cash consideration of 300 pence per The Body Shop Share, The Body Shop

Shareholders (other than any The Body Shop Shareholders in any Restricted Jurisdiction or Japan) who validly

accept the Offer will be able to elect to receive Loan Notes issued by LOreal on the following basis:

for each 1 of cash consideration 1 in nominal value of Loan Notes

The Loan Note Alternative will be conditional upon the Offer becoming or being declared unconditional in all

respects. The Loan Note Alternative will remain open for acceptance until the Offer closes.

Further information concerning the Loan Note Alternative is set out in paragraph 5 of the letter from JPMorgan

Cazenove in Part II of this document. A summary of the principal terms and conditions of the Loan Notes is set

out in Appendix II to this document.

4. Background to and reasons for recommending the Offer

Since its founding in 1976, The Body Shop has become a leading global cosmetics brand by pioneering the

development of the market for naturally inspired personal care products. By espousing its founders values ofrespect for the environment, animals and humanity, The Body Shop has developed a loyal customer base, which

has continued to grow as the demand for ethical products has increased amongst consumers.

Following The Body Shops rapid international expansion and success in the 1980s and 1990s, The Body Shop

experienced disappointing profitability as The Body Shop Group struggled to cope with its growth. As a result of

the substantial reorganisation that has taken place over the last four years under the current executive

management team, operating profit and earnings per share have improved substantially, resulting in a strong share

price performance. In 2004, a 100 million investment plan was put in place to grow The Body Shop brand in

existing and new markets and improve systems. This strategy was underpinned by a vision of creating an

integrated multi-channel retailer offering customers a choice of channels to access The Body Shop products

including retail, The Body Shop At Home and e-commerce.

Over the last two years, this strategy has delivered positive sales growth with a particularly strong performance inThe Body Shop At Home. In the most recent trading update in January 2006, sales performance in Asia and

Europe, Middle East and Africa was good, but the Americas and the United Kingdom & Republic of Ireland

underperformed group expectations. At the time, the board of The Body Shop made clear that it was confident in

the strategy and the medium term growth prospects for The Body Shop.

Against this background, the board of The Body Shop believe that the offer by LOreal not only fully reflects the

prospects for The Body Shop Group on a stand alone basis but also provides an opportunity for the furtherance of

The Body Shop Groups employees and its social values within a world-class cosmetics company.

5. Current trading update

The Body Shop provided the following outlook statement in its Christmas trading update released on 11 January

2006:

Whilst many markets achieved the forecasted level of sales growth during the Christmas period, overall retail

sales were lower than expected as the US and UK markets did not achieve the targeted rate of growth in this

period of high profit leverage.

Gross margins are above the level achieved last year. However, the full year operating profit will reflect over

4 million of non-recurring items comprising reorganisation and other costs that have been incurred to improve

performance and reduce future operating costs.

As a result of the somewhat lower than expected Christmas sales and non-recurring costs, we have revised our

previous expectations for the full year outcome. We now expect operating profit to be level with, or marginally

ahead of, last year.

Our effective tax rate in the last financial year was 19%. Previously, we were forecasting an effective rate of 24%

for the current year. However, due to changes in geographical profit mix, we now anticipate a tax rate slightly

lower than our previous estimate with earnings per share marginally down on last year.

8


11/132

Under Rule 28 of the City Code, this statement can be interpreted as a profit estimate for The Body Shops full

year operating profit and earnings per share. Accordingly, this statement has been reported on for the purposes of

such rule and The Body Shop Shareholders are referred to Appendix IV to this document for full details in this

regard.

The Body Shop Directors confirm that, on the basis of preparation set out in Appendix IV to this document, this

estimate remains valid for the purpose of the Offer.

6. Management and employees

LOreal has recognised the strong contribution made by The Body Shops management and employees to the

development of The Body Shop and views them as being critical to the future success of The Body Shop within

the LOreal Group. The Body Shop will add an important additional brand to the LOreal portfolio and LOreal

expects that The Body Shops managers and employees will play an important role in the LOr eal Group as well

as benefiting from greater opportunities within it.

Accordingly, LOreal has given the board of The Body Shop assurances that, following the closing of the Offer,

the existing employment rights, including pension rights, of all management and employees of The Body Shop

will be fully safeguarded.

LOreal expects that the executive directors of The Body Shop, along with the rest of The Body Shops senior

management team, will remain with The Body Shop. Dame Anita Roddick has also agreed to enter into aconsultancy agreement with LOreal pursuant to which she will provide consultancy services to the LOreal

Group in addition to her current role as consultant to The Body Shop. Details of this agreement are set out in

paragraph 9 of Appendix V to this document.

7. The Body Shop Share Schemes

The Offer will extend to any The Body Shop Shares unconditionally allotted or issued pursuant to the exercise of

options under The Body Shop Share Schemes while the Offer remains open for acceptance (or prior to such date

as LOreal may, subject to the rules of the Code, decide). Appropriate proposals will be made to participants in

The Body Shop Share Options Schemes in due course.

8. Irrevocable undertakings and call option

LOreal has received irrevocable undertakings to accept the Offer from Dame Anita Roddick and Mr Gordon

Roddick in respect of, in aggregate, 39,171,672 The Body Shop Shares, representing approximately

18.0 per cent. of The Body Shops existing issued share capital. All of the other directors of The Body Shop have

given irrevocable undertakings to accept the Offer in respect of, in aggregate, 7,806,046 The Body Shop Shares,

representing approximately 3.6 per cent. of The Body Shops existing issued share capital. All of these

undertakings will remain binding in the event of a higher competing offer.

In addition to the irrevocable undertakings described above, Beaverbridge Holdings Limited has granted LOreal

a call option which gives LOreal the ability to require Beaverbridge Holdings Limited to tender 45,666,768 The

Body Shop Shares (being The Body Shop Shares in which Mr Ian McGlinn is interested), representing

approximately 21.0 per cent. of The Body Shops existing issued share capital, to the Offer. The call option will

remain binding in the event of a higher competing offer.

In aggregate, the irrevocable undertakings and the call option described above account for approximately 42.6 per

cent. of The Body Shops total existing issued share capital.

In addition to the irrevocable undertakings and call option, and as announced on 23 March 2006, LOreal

acquired, on 22 March 2006, 22,800,000 The Body Shop Shares, representing approximately 10.5 per cent. of

The Body Shops existing issued share capital.

Further details of the irrevocable undertakings and call option are set out in paragraph 4 of Appendix V to this

document.

9. De-listing, compulsory acquisition and re-registration

The attention of The Body Shop Shareholders is drawn to paragraph 12 of the letter from JPMorgan Cazenove set

out in Part II of this document in relation to LOreals intentions regarding the compulsory acquisition of The

Body Shop Shares and de-listing and cancellation of trading in The Body Shop Shares.

9


12/132

10. Taxation

Your attention is drawn to paragraph 13 of the letter from JPMorgan Cazenove set out in Part II of this document.

If you are in any doubt as to your own tax position, or if you are subject to taxation in a jurisdiction outside the

United Kingdom, you should seek your own appropriate independent professional advice.

11. Further information

Your attention is drawn to the letter from JPMorgan Cazenove in Part II of this document and to Appendices I

to V to this document.

12. Action to be taken

To accept the Offer:

) if you hold your The Body Shop Shares, or any of them, in certificated form (that is, not in CREST),

to accept the Offer in respect of those The Body Shop Shares (and, if relevant, to elect for the Loan

Note Alternative) you should complete, sign and return the Form of Acceptance (together with your

share certificates and any other documents of title) as soon as possible and, in any event, so as to be

received by not later than 1.00 p.m. on 3 May 2006. Further details on the procedures for

acceptance of the Offer (and, if relevant, electing for the Loan Note Alternative) if you hold any ofyour The Body Shop Shares in certificated form are set out in paragraphs 15(a) to (d) of the letter from

JPMorgan Cazenove in Part II of this document, Parts B and C of Appendix I to this document and in

the accompanying Form of Acceptance. A reply-paid envelope for use in the United Kingdom only is

enclosed for your convenience and may be used by holders of The Body Shop Shares in certificated

form in the United Kingdom for returning their Forms of Acceptance; or

) if you hold your The Body Shop Shares, or any of them, in uncertificated form (that is, in CREST), to

accept the Offer in respect of those The Body Shop Shares (and, if relevant, to elect for the Loan

Note Alternative) you should follow the procedure for Electronic Acceptance through CREST so that

the TTE instruction settles as soon as possible and, in any event, not later than 1.00 p.m. on 3 May

2006. Further details on the procedures for acceptance of the Offer (and, if relevant, electing for the

Loan Note Alternative) if you hold any of your The Body Shop Shares in uncertificated form are set

out in paragraphs 15(e) to (g) of the letter from JPMorgan Cazenove in Part II of this document andParts B and D of Appendix I to this document. If you hold your The Body Shop Shares as a CREST

sponsored member, you should refer to your CREST sponsor as only your CREST sponsor will be

able to send the necessary TTE instruction(s) to CREST.

If you are in any doubt as to the procedure for acceptance, please contact the shareholder helpline by

telephone on 0870 609 2158 or, if telephoning from outside the United Kingdom, on +44 1903 276 342.

If you are in any doubt as to the action you should take, you should seek appropriate independent financial

advice immediately.

13. Recommendation

The directors of The Body Shop, who have been so advised by Merrill Lynch, consider the terms of theOffer to be fair and reasonable. In providing its advice, Merrill Lynch has taken into account the

commercial assessments of the directors of The Body Shop. Accordingly, the directors of The Body Shop

unanimously recommend that The Body Shop Shareholders accept the Offer, as the directors of The Body

Shop have irrevocably undertaken to do in respect of their own beneficial shareholdings.

Yours sincerely

Adrian Bellamy

Executive Chairman

The Body Shop International PLC

10


13/132

PART II

Letter from JPMorgan Cazenove

JPMorgan Cazenove Limited20 Moorgate

London EC2R 6DA

England

(Registered in England

and Wales, No. 04153386)

12 April 2006

To The Body Shop Shareholders and, for information only, to holders of options granted under The Body Shop

Share Schemes

Dear Sir or Madam,

Recommended Cash Offer for The Body Shop International PLC

1. Introduction

It was announced on 17 March 2006 that the boards of LOreal and The Body Shop had reached agreement on

the terms of a recommended cash offer to be made by JPMorgan Cazenove on behalf of LOr eal to acquire the

entire issued and to be issued share capital of The Body Shop. The terms of the Offer value the existing issued

share capital of The Body Shop at approximately 652.4 million.

2. The Offer

JPMorgan Cazenove, on behalf of LOreal, hereby offers to acquire (on the terms and subject to the conditions

set out in this document and in the accompanying Form of Acceptance) the entire issued and to be issued share

capital of The Body Shop not already owned by LOreal on the following basis:

for each The Body Shop Share 300 pence in cash

The terms of the Offer value the entire existing issued share capital of The Body Shop at approximately

652.4 million.

The terms of the Offer represent a premium of approximately:


(being the last day prior to press speculation of a possible bid for The Body Shop);


(being the last business day prior to the date of LOreals announcement of a possible offer for The

Body Shop); and

) 31.5 per cent. to The Body Shops average closing mid market price of 228.2 pence for the six months

up to and including 21 February 2006.

The Body Shop Shares that are subject to the Offer will be acquired fully paid with full title guarantee and free

from all liens, charges, equitable interests, encumbrances, rights of pre-emption and any other third party rights

and interests of any nature whatsoever and together with all rights now and hereafter attaching thereto, including,

without limitation, voting rights and the right to receive and retain in full all dividends (other than the second

interim dividend in lieu of a final The Body Shop dividend for the 52 weeks to 25 February 2006) and other

distributions (if any) declared, made or paid on or after the date of the Announcement.

The Body Shop Shareholders on the register at close of business on 24 March 2006 will be entitled to receive a

second interim dividend, of 4.4 pence per The Body Shop Share, payable on 3 July 2006, in lieu of a final The

Body Shop dividend for the 52 weeks to 25 February 2006. The second interim dividend is not conditional on the

Offer becoming or being declared wholly unconditional.

11


14/132

3. Recommendation

Your attention is drawn to the letter from the Chairman of The Body Shop set out in Part I of this document,

which explains the reasons why the directors of The Body Shop, who have been so advised by Merrill Lynch,

consider the terms of the Offer to be fair and reasonable. In providing its advice, Merrill Lynch has taken into

account the commercial assessments of the directors of The Body Shop. Paragraph 13 of the letter from the

Chairman of The Body Shop set out in Part I of this document states that the directors of The Body Shop

unanimously recommend that The Body Shop Shareholders accept the Offer, as the directors of The Body Shop

have irrevocably undertaken to do in respect of their own beneficial shareholdings.

4. Irrevocable undertakings and call option

LOreal has received irrevocable undertakings to accept the Offer from Dame Anita Roddick and Mr Gordon

Roddick, in respect of, in aggregate, 39,171,672 The Body Shop Shares, representing approximately

18.0 per cent. of The Body Shops existing issued share capital. All of the other directors of The Body Shop have

given irrevocable undertakings to accept the Offer in respect of, in aggregate, 7,806,046 The Body Shop Shares,

representing approximately 3.6 per cent. of The Body Shops existing issued share capital. All of these

undertakings will remain binding in the event of a higher competing offer.

In addition to the irrevocable undertakings described above, Beaverbridge Holdings Limited has granted LOreal

a call option which gives LOreal the ability to require Beaverbridge Holdings Limited to tender 45,666,768 The

Body Shop Shares (being The Body Shop Shares in which Mr Ian McGlinn is interested), representingapproximately 21.0 per cent. of The Body Shops existing issued share capital, to the Offer. The call option will

remain binding in the event of a higher competing offer.

In aggregate, the irrevocable undertakings and the call option described above account for approximately

42.6 per cent. of The Body Shops total existing issued share capital.

In addition to the irrevocable undertakings and call option, and as announced on 23 March 2006, LOreal

acquired, on 22 March 2006, 22,800,000 The Body Shop Shares, representing approximately 10.5 per cent. of

The Body Shops existing issued share capital.

Further details of the irrevocable undertakings and call option are set out in paragraph 4 of Appendix V to this

document.

5. The Loan Note Alternative

As an alternative to all or some of the cash consideration of 300 pence per The Body Shop Share, The Body Shop

Shareholders (other than any The Body Shop Shareholders in any Restricted Jurisdiction or Japan) who validly

accept the Offer will be able to elect to receive Loan Notes issued by LOreal on the following basis:

for each 1 of cash consideration 1 in nominal value of Loan Notes

The Loan Note Alternative will be conditional upon the Offer becoming or being declared unconditional in all

respects. The Loan Note Alternative will remain open for acceptance until the Offer closes.

The Loan Notes will be issued by LOreal, credited as fully paid, in amounts and integral multiples of 1 and the

balance of any entitlement that is not a whole multiple of 1 will be disregarded and not issued. The Loan Notes

will bear interest at 0.50 per cent. below six-month sterling LIBOR (as more particularly set out in Appendix II to

this document) to be determined on the first business day of each interest period. The first interest period willcommence on the day after that on which the Offer becomes unconditional in all respects. Interest will be payable

by half-yearly instalments in arrears (less any tax) on 30 June and 31 December in each year. The first payment

of interest will be made on 31 December 2006 (the First Payment Date).

On the First Payment Date, interest will be paid in respect of the period from (and including) the date of issue of

the relevant Loan Notes to (but excluding) the First Payment Date. The Loan Notes will be redeemable in whole

or in part for cash at par at the option of noteholders on the first interest payment date which falls more than six

months after the date of issue of the Loan Notes and subsequently on each interest payment date.

No Loan Notes will be issued by LOreal unless, on or before the date on which the Offer becomes or is declared

unconditional in all respects, the aggregate nominal value of all Loan Notes to be issued as a result of valid

elections for the Loan Note Alternative exceeds 1 million. If such aggregate is less than 1 million, any such

election shall, unless LOreal decides otherwise, be void and, provided the acceptance of the Offer is otherwise

valid, the relevant The Body Shop Shareholders will be deemed to have accepted the Offer for cash. LOr eal will

have the right to redeem all of the Loan Notes if the aggregate nominal value of outstanding Loan Notes falls

12


15/132

below 1 million at any time during their term. If not previously redeemed, the final redemption date will be

30 June 2013. Any Loan Notes outstanding on the final redemption date will be redeemed at par (together with

any accrued interest) on that date. The Loan Notes will not be transferable, and no application will be made for

them to be listed on, or dealt on, any stock exchange or other trading facility.

The Loan Notes and the Loan Note Instrument will be governed by and construed in accordance with English law

and will be unsecured obligations of LOreal.

JPMorgan Cazenove has estimated that, based on market conditions as at the close of business on 11 April 2006(the last practicable date prior to the publication of this document), the value of the Loan Notes (had they been

issued that day) would not have been less than 98 pence per 1 in nominal value.

A summary of the principal terms and conditions of the Loan Note Alternative is set out in Appendix II to this

document.

6. Information relating to LOreal

LOreal is one of the worlds leading manufacturers of cosmetics, on which it has been focused since it was

founded nearly a century ago. LOreals strategic vision is grounded in its respect for the different sensitivities

and cultural preferences of its consumers over the world. For this reason, LOreal does not seek to export nor

impose one single vision of beauty throughout the world.

LOreal has four divisions with a unique and diverse portfolio of 18 distinct and complementary global brands of

diverse cultural origins with strong personalities, developed for each distribution channel and which enjoy

worldwide recognition:

) The Professional Products Division is dedicated to the hairdressing community. Its products aim to

meet the requirements of salon professionals in hair colourants, texture and haircare, and are used and

sold in salons worldwide.

) The Consumer Products Division markets a portfolio of complementary brands through mass-

market retail channels. Its products combine high technology and strong added-value with affordable

pricing.

) The Luxury Products Division has a portfolio of prestigious brands whose products are sold in

selective retail outlets such as department stores, perfumeries, travel retail outlets and the LOrealGroups own boutiques. The Divisions brands provide exclusive products featuring innovations

developed by LOreal research.

) The Active Cosmetics Division markets dermo-cosmetic skincare products sold in pharmacies and

specialist sections of drugstores.

LOreals products are distributed through a range of channels including mass-market channels, perfumeries,

department stores and duty-free shops, hair salons, pharmacies and specialty health and beauty outlets. LOreal

also distributes mail-order cosmetics through The Club des Createurs de Beaute, a jointly held subsidiary of

LOreal. The LOreal Group is now present in over 130 countries and has approximately 52,000 employees,

whose diversity of nationalities beliefs and preferences is considered an asset of LOreal.

For the audited financial year ended 31 December 2005, LOreal reported net sales in accordance with IFRS of

414,532.5 million (2004: 413,641.3 million) and profit before taxation and minority interests of42,379.1 (2004restated(1): 42,060.4 million). The consolidated net assets of LOreal as at 31 December 2005 were

414,657.2 million (2004: 411,825.4 million).

In LOreals preliminary annual results statement for the financial year ended 31 December 2005 released on

16 February 2005, Sir Lindsay Owen-Jones, Chairman and Chief Executive Officer of LOreal stated:

In 2005, LOreals growth once again clearly outperformed the world market, thanks to the powerful appeal of

its brands and the success of its new high-value-added products. Growth was driven by good performance in

North America and new breakthroughs in emerging markets, while the rates of increase were more modest in

Western Europe. Growth in sales combined with strict cost control has enabled us once again to improve

(1) For comparison purposes, the consolidated profit and loss statement for the year ended 31 December 2004 is restated in order to reflect

the deconsolidation of Sanofi-Synthelabo at 1 January 2004 by replacing the share in net income of Sanofi-Synthelabo,4

293.5 million, by thereceived dividends, 4145.9 million and by neutralising the net tax dilution capital gain relating to these shares, gross value: 42,854.5 million

and tax: 4471.1 million.

13


16/132

profitability and achieve double-digit earnings growth. We are confident about the outlook for 2006 in view of the

faster growth in Western Europe at the end of last year and the strong international momentum.

As detailed in Paragraph 8 of this letter, LOreal is confident that The Body Shop will constitute an appealing

addition within the LOreal Group and against this background the LOreal Directors continue to view the future

prospects of the LOreal Group with confidence.

7. Information relating to The Body Shop

The Body Shop markets a wide range of The Body Shop branded cosmetics, including bath and body products,

skin-care products, make-up, fragrances, hair-care and mens grooming products. The Body Shop was founded

by Dame Anita Roddick and Mr Gordon Roddick in Brighton, United Kingdom in 1976. The company is

headquartered in Littlehampton, United Kingdom and as at 26 February 2005 had approximately 7,000 company

employees within a total of approximately 30,000 people including The Body Shop consultants and franchisee

employees who relied on The Body Shop for employment.

The Body Shop operates a multi-channel distribution network distributing its own The Body Shop branded

products through company owned retail stores, franchised stores and through its direct selling division The Body

Shop at Home and e-commerce. The manufacture of The Body Shops products is mainly outsourced, with 28

suppliers in 22 countries as at 26 February 2005.

The Body Shop is present in 54 countries worldwide, with particular strength in the UK and Americas, and robust

growth prospects in Asia-Pacific and Continental Europe, the Middle East, and Africa. As of 27 August 2005,

The Body Shop had 304 stores in the UK and Ireland, of which 235 were owned and 69 franchised, 433 stores in

the Americas of which 360 were owned and 73 franchised, 583 in Asia Pacific of which 66 were owned and 517

franchised, and 765 stores in Continental Europe, the Middle East, and Africa of which 117 were owned and 648

franchised.

In the 52 weeks to 26 February 2005 and as detailed in Appendix III to this document, on a restated IFRS basis

The Body Shop generated earnings before interest and tax of 39.2 million with revenue of 419.0 million.

8. Background to and reasons for the Offer

LOreal believes that the Offer will create significant value for its shareholders and is consistent with LOreals

strategy of acquiring market leading brands with global reach, with further potential to grow.

Brand

The Body Shop is a successful, global, naturally-oriented, cosmetics brand with a clear and differentiated

identity. The brand is underpinned by strong and well defined values with a distinct heritage. The Body Shops

brand positioning will be highly complementary to LOreals portfolio and will provide LOreal with a sizeable

brand in the cosmetics sector which generated more than 700 million in retail sales (approximately 419 million

in revenue) in the 52 weeks to 26 February 2005 (on a restated IFRS basis). The Body Shop will constitute

LOreals only owned brand of British origin occupying the leading position in the high-growth environmentally

conscious consumer segment. The Body Shop brand will represent an appealing addition to LOreals existing

range of brands.

The Body Shop will operate independently within the LOreal Group and will be led by The Body Shops current

management team reporting directly to the CEO-Designate of LOreal, Jean-Paul Agon. The Body Shop willcontinue to be based in the United Kingdom.

Expertise in distribution

The Body Shop markets its products through an extensive company-owned and franchised store network (which

comprised 2,085 stores worldwide as at 27 August 2005) with an e-commerce channel and a direct selling

operation, thereby exercising total control over the distribution of its products. LOreal intends to develop The

Body Shop brand and its retail network as a separate entity, exclusively selling The Body Shop branded products,

while LOreals existing products would continue to be marketed through its traditional distribution channels.

LOreal believes that its contribution to The Body Shop would consist primarily of the provision of access to

LOreals research and development capabilities and allowing The Body Shop to leverage LOreals extensive

marketing expertise in the cosmetics sector to further develop The Body Shop brand identity. LOr eal also

intends to continue to roll-out the new The Body Shop store format and accelerate store openings in existing and

new markets as part of The Body Shops existing 100 million growth programme.

14


17/132

LOreal expects that the acquisition of The Body Shop will be EPS neutral in the financial year to 31 December

2006, and EPS accretive thereafter(2).

9. Management and employees of The Body Shop

LOreal recognises the strong contribution made by The Body Shops management and employees to the

development of The Body Shop and views them as being critical to the future success of The Body Shop within

the LOreal Group. The Body Shop will add an important additional brand to the LOreal portfolio and LOrealexpects that The Body Shops managers and employees will play an important role in the LOr eal Group as well

as benefiting from greater opportunities within it.

Accordingly, LOreal has given the board of The Body Shop assurances that, following the closing of the Offer,

the existing employment rights, including pension rights, of all management and employees of The Body Shop

will be fully safeguarded.

LOreal expects that the executive directors of The Body Shop (Adrian Bellamy and Peter Saunders), along with

the rest of The Body Shops senior management team, will remain with The Body Shop. Dame Anita Roddick

has also agreed to enter into a consultancy agreement with LOreal pursuant to which she will provide

consultancy services to the LOreal Group in addition to her current role as consultant to The Body Shop. Details

of this agreement are set out in paragraph 9 of Appendix V to this document.

10. The Body Shop Share Schemes

The Offer will extend to any The Body Shop Shares unconditionally allotted or issued pursuant to the exercise of

options under The Body Shop Share Schemes while the Offer remains open for acceptance (or such earlier date

as LOreal may, subject to the rules of the Code, decide). Appropriate proposals will be made to participants in

The Body Shop Share Schemes in due course.

11. Financing

In addition to LOreals existing financial resources, LOreal has obtained committed financing, arranged by

J.P.Morgan Chase Bank N.A. Paris Branch, sufficient to enable LOreal to satisfy in full the cash considerationpayable to The Body Shop Shareholders and otherwise to fulfil its commitments under the terms of the Offer.

12. De-listing, compulsory acquisition and re-registration

If the Offer becomes or is declared unconditional in all respects, and sufficient acceptances under the Offer are

received, LOreal intends to procure that The Body Shop makes applications to cancel the listing of The Body

Shop Shares on the UKLAs Official List and to cancel admission to trading in The Body Shop Shares on the

London Stock Exchanges market for listed securities.

If LOreal receives acceptances under the Offer in respect of, or otherwise acquires, 90 per cent. or more of The

Body Shop Shares to which the Offer relates, LOreal intends to exercise its rights pursuant to the provisions of

sections 428 to 430F (inclusive) of the Companies Act to acquire compulsorily the remaining The Body ShopShares in respect of which the Offer has not been accepted on the same terms as the Offer.

It is anticipated that cancellation of listing on the Official List and admission to trading on the London Stock

Exchange will take effect no earlier than 20 business days after either (i) the date on which LOreal has, by virtue

of its shareholdings and acceptances of the Offer, acquired or agreed to acquire issued share capital carrying

75 per cent. of the voting rights of The Body Shop or (ii) the first date of issue of compulsory acquisition notices

under Section 429 of the Companies Act. De-listing would significantly reduce the liquidity and marketability of

any The Body Shop Shares not assented to the Offer at that time.

It is also intended that, following the Offer becoming or being declared unconditional in all respects, The Body

Shop will be re-registered as a private company under the relevant provisions of the Companies Act.

(2) This statement should not be interpreted to mean that the EPS for the current or future financial years will necessarily match or exceed the

historical published EPS.

15


18/132

13. Taxation

United Kingdom Taxation

The following paragraphs, which are intended as a general guide only, are based on current UK legislation and

UK HM Revenue and Customs (HMRC) practice. You are warned that levels and bases of taxation can

change. They summarise certain limited aspects of the UK taxation treatment of the acceptance of the Offer, and

they relate only to the position of individual and corporate The Body Shop Shareholders who hold their The

Body Shop Shares beneficially as an investment, otherwise than under a personal equity plan or an individualsavings account (ISA) or as employment related securities, and who are resident or ordinarily resident in the UK

for taxation purposes (except in so far as express reference is made to the treatment of non-UK residents). The tax

treatment for The Body Shop Shareholders who acquired their The Body Shop Shares through The Body Shop

Share Schemes may be different and will be summarised in LOreals letter to participants in those schemes. If

you are in any doubt as to your taxation position or if you are subject to taxation in any jurisdiction other

than the UK, you should consult an appropriate independent professional adviser immediately.

Cash UK taxation on chargeable gains

A The Body Shop Shareholder who receives cash under the Offer will, except to the extent referred to in the final

paragraph of this section headed Cash UK taxation on chargeable gains, make a disposal, or part disposal,

of his The Body Shop Shares for the purposes of UK taxation on chargeable gains. Such disposal may, depending

on the shareholders individual circumstances (including the availability of exemptions, reliefs and allowable

losses) give rise to a liability to UK taxation on chargeable gains.

Any chargeable gain on a part disposal of a holding of The Body Shop Shares will be computed on the basis of

an apportionment of the allowable cost of the holding by reference to the market value of the holding at the time

of disposal.

The Body Shop Shareholders who are neither resident nor ordinarily resident in the UK for UK tax purposes are

not subject to UK tax on chargeable gains on a disposal, or part disposal, of The Body Shop Shares unless such

The Body Shop Shares are used, held or acquired for the purposes of a trade, profession or vocation carried on in

the UK through a branch or agency or, in the case of a corporate shareholder, through a permanent establishment.

Such The Body Shop Shareholders may be subject to foreign taxation on any gain under local law.

In the case of a The Body Shop Shareholder which is within the charge to UK corporation tax on a disposal, orpart disposal, of its The Body Shop Shares, such The Body Shop Shareholder should be entitled to an indexation

allowance in calculating its chargeable gain, if any.

Indexation allowance is only available to other UK taxpayers (not being corporation taxpayers) for periods of

ownership before 5 April 1998. Taper relief may be available to reduce the amount of the gains subject to tax

generally by reference to such The Body Shop Shareholders period of ownership after 5 April 1998, depending

on the number of complete years for which The Body Shop Shareholder has owned The Body Shop Shares.

If a The Body Shop Shareholder receives Loan Notes as well as cash and the amount of cash received is small in

comparison with the value of his The Body Shop Shares disposed of, The Body Shop Shareholder will not be

treated as having disposed of the shares in respect of which the cash was received. Instead the cash will be treated

as a deduction from the base cost of his The Body Shop Shares and therefore Loan Notes rather than as a part

disposal or, in the case of corporate shareholders receiving Loan Notes, any chargeable gain or loss calculated as

arising on receipt of such cash and Loan Notes will be held over as described in the section headed Disposal

of Loan Notes below. Under current HMRC practice, any cash payment of 3,000 or less or payment which is

5 per cent. or less of the market value of a The Body Shop Shareholders holding of The Body Shop Shares will

generally be treated as small for these purposes.

Loan Notes

(a) Acquisition of Loan Notes

To the extent that a The Body Shop Shareholder receives Loan Notes in exchange for his The Body Shop

Shares and does not hold (either alone or together with persons connected with him) more than 5 per cent.

of, or of any class of, shares in or debentures of The Body Shop, he will not be treated as having made a

disposal of his The Body Shop Shares. Instead, for individual The Body Shop Shareholders, the Loan

Notes will be treated as the same asset as those The Body Shop Shares, acquired at the same time and for

the same consideration as those shares. For corporate shareholders, any gain or loss which would

16


19/132

otherwise have arisen on a disposal of those The Body Shop Shares will be calculated as at the time of the

disposal but only become payable on a subsequent disposal (including redemption) of the Loan Notes.

Any The Body Shop Shareholder who holds (either alone or together with persons connected with him)

more than five per cent. of, or any class of, shares in or debentures of The Body Shop is advised that an

application for clearance has been made to HMRC under Section 138 of the Taxation of Chargeable

Gains Act 1992 in respect of the Offer. If such clearance is given, any such The Body Shop Shareholder

will be treated in the manner described in the preceding paragraph. The Offer is not conditional on suchclearance being obtained. If the clearance is not given then any The Body Shop Shareholder who holds

(either alone or together with persons connected with him) more than 5 per cent. of, or any class of, shares

in or debentures of The Body Shop will be treated as if the disposal of his The Body Shop Shares is for an

amount equal to the market value of the Loan Notes that he receives in consideration for them.

Paragraph (b) below headed Disposal of Loan Notes assumes that the clearance is given.

(b) Disposal of Loan Notes

A subsequent disposal (including redemption) of the Loan Notes may, depending on individual

circumstances, give rise to a liability to UK tax on chargeable gains.

For individual shareholders, the Loan Notes should not be qualifying corporate bonds and accordingly an

indexation allowance should be applied until April 1998 with taper relief (if available) applying thereafteruntil disposal, depending on the number of complete years for which The Body Shop Shares/Loan Notes

have been held.

For corporate shareholders, the Loan Notes will be qualifying corporate bonds and so indexation

allowance will not accrue in respect of them. Accordingly, for corporate shareholders, any held over

chargeable gain or loss which is calculated as at exchange but is only deemed to accrue on the disposal

(including redemption) of the Loan Notes should be calculated taking into account a proportion of the

allowable cost to the holder of acquiring its The Body Shop Shares based on an apportionment of the

allowable cost of its The Body Shop Shares at the time of the exchange between any cash and Loan Notes

received. To this should be added (when calculating a chargeable gain but not an allowable loss)

indexation allowance on that proportion of the original allowable cost accrued up to the time of the

exchange of The Body Shop Shares for Loan Notes.

Corporate holders of Loan Notes are also referred to paragraph (c) below.

(c) Interest on Loan Notes

LOreal will not gross up payments of interest on the Loan Notes to compensate for any tax it is required

to deduct at source. Please refer to the section below headed Interest on Loan Notes French

withholding tax for circumstances in which Loan Note holders will be subject to French withholding tax

and for details of how such holders might be eligible to claim exemption from such French withholding

tax.

Where the holder of the Loan Notes is an individual, the gross amount of interest paid on the Loan Notes

will form part of the holders income for the purposes of income tax. Accordingly, such holders willgenerally pay income tax on such interest at the starting rate (currently 10 per cent.) to the extent that it is

treated as falling below the individuals starting rate limit, at the lower rate (currently 20 per cent.) to the

extent that it is treated as falling below the individuals basic rate limit but above the individuals starting

rate limit and at the higher rate (currently 40 per cent.) to the extent that it is treated as falling above the

individuals higher rate limit.

A holder of Loan Notes which is a company within the charge to UK corporation tax in respect of the

Loan Notes will generally bring into the charge to tax as income, interest on, and any profits and gains

arising from, the Loan Notes in each accounting period broadly in accordance with the holders

authorised accounting treatment for this purpose.

Any The Body Shop Shareholders who receive Loan Notes and who do not receive a notice from HMRC

requiring them to submit a tax return are advised that they will need to notify HMRC that they have

acquired a source of overseas income.

17


20/132

Other direct tax matters

Special tax provisions may apply to The Body Shop Shareholders who have acquired or acquire their The Body

Shop Shares by exercising options under The Body Shop Share Schemes, including provisions imposing a charge

to income tax.

Stamp duty and stamp duty reserve tax (SDRT)

(a) Cash

No stamp duty or SDRT will be payable by The Body Shop Shareholders as a result of accepting the

Offer.

(b) Loan Notes

No stamp duty or SDRT will be payable on a transfer or sale of, or on an agreement to transfer, Loan

Notes.

French Taxation

The following paragraphs apply only to persons who are not resident in France and have no connection with

France other than by virtue of their holding of Loan Notes. They are based on current French law and practice.

(a) Interest on Loan Notes French withholding tax

Interest on the Loan Notes paid by LOreal will be subject to a 16% French withholding tax, subject

however to an appropriate provision of an applicable double taxation treaty.

In this respect, Loan Note holders should consult their own counsel with respect to their particular

circumstances.

Interest on the Loan Notes paid by LOreal to a person who is beneficially entitled to the interest and who

is a resident of the United Kingdom for the purposes of the UK/French double taxation treaty shall be

exempt from the 16% French withholding tax, subject to the completion of the following formal

requirements:

(i) such person has sent three copies of Form RF-2GB No. 5085 to its UK tax office for certification;

(ii) such person has sent the second and third copies of the relevant form, duly certified by its UK tax

office, to Lloyds TSB Registrars for onward transmission to LOreal; and

(iii) LOreal has received these forms prior to the First Payment Date (31 December 2006).

Three copies of Form RF-2GB No. 5085 will be sent to The Body Shop Shareholders who accept the

Loan Note Alternative by Lloyds TSB Registrars. Please refer to section 16 of this letter from JPMorgan

Cazenove for further details.

(b) Loan Notes other French tax issues

Other than for any sums withheld on interest payments, holders of Loan Notes who are not resident in

France and have no connection with France other than by virtue of their holding of Loan Notes should

incur no liability to French tax in respect of payments of interest or principal on the Loan Notes.

No French stamp or other registration duty should be due on the issue of the Loan Notes.

(c) Loan Notes disclosure obligations

In addition to the disclosure obligations provided for by the EU Directive on the Taxation of Savings

Income (see paragraph below), LOreal will also be required to report to the French tax authorities the

amounts and the beneficiary of payments under the Loan Notes.

EU Directive on the Taxation of Savings Income

The EU has adopted a Directive regarding the taxation of savings income. The Directive requires Member States

to provide to the tax authorities of other Member States details of payments of interest and other similar income

paid by a person to an individual in another Member State, except that Austria, Belgium and Luxembourg will

instead impose a withholding system for a transitional period unless during such period they elect otherwise.

18


21/132

14. Overseas Shareholders

The attention of The Body Shop Shareholders who are citizens or residents of jurisdictions outside the United

Kingdom or who are holding shares for such citizens or residents and any person (including, without limitation,

any custodian, nominee or trustee) who may have an obligation to forward any document in connection with the

Offer outside the United Kingdom is drawn to paragraph 5 of Part B, paragraph 3 of Part C and paragraph 3 of

Part D of Appendix I to this document and to the relevant provisions of the Form of Acceptance, which they

should read before taking any action.The Offer is not being made, directly or indirectly, in or into any Restricted Jurisdiction. Accordingly, acceptors

who are unable to give the warranties set out in paragraph 3 of Part C and/or paragraph 3 of Part D of Appendix I

to this document may be deemed not to have validly accepted the Offer.

The availability of the Offer to The Body Shop Shareholders who are not resident in the United Kingdom

may be affected by the laws of their relevant jurisdiction. Such persons should inform themselves of, and

observe, any applicable legal or regulatory requirements of their jurisdiction. If you remain in any doubt,

you should consult an appropriate independent professional adviser in the relevant jurisdiction without

delay.

All The Body Shop Shareholders (including custodians, nominees or trustees) who would, or otherwise intend to,

or may have a legal or contractual obligation to, forward this document and/or the Form of Acceptance and/or

any related documents to any jurisdiction outside the United Kingdom, should read the further details in thisregard, which are contained in paragraph 5 of Part B, paragraph 3 of Part C and paragraph 3 of Part D of

Appendix I to this document, before taking any action.

15. Procedure for acceptance of the Offer

The Body Shop Shareholders who hold their The Body Shop Shares in certificated form should read this

section in conjunction with the Form of Acceptance and Parts B and C of Appendix I to this document.

The Body Shop Shareholders who hold their shares in uncertificated form (that is, through CREST)

should read this section in conjunction with Parts B and D of Appendix I to this document. The

instructions on the Form of Acceptance are deemed to form part of the terms of the Offer.

The Body Shop Shares held in certificated form (i.e. not in CREST)

(a) Completion of the Form of Acceptance

To accept the Offer in respect of The Body Shop Shares held in certificated form, you must

complete the Form of Acceptance in accordance with the instructions set out below and on the

Form of Acceptance. You should complete separate Forms of Acceptance for The Body Shop

Shares held in certificated form but under different designations. If you have any queries as to how

to complete the Form of Acceptance, please telephone Lloyds TSB Registrars on 0870 609 2158 (or

+44 1903 276 342, if telephoning from outside the UK). Additional Forms of Acceptance are

available from Lloyds TSB Registrars upon request.

(i) To accept the Offer in respect of all your The Body Shop Shares in certificated form

To accept the Offer in respect of all your The Body Shop Shares, you must complete Box 3A and,

if appropriate, Box 3B of the enclosed Form of Acceptance. If appropriate, you should also

complete Boxes 5 and/or 6. In all cases, you must complete Box 4 of the enclosed Form of

Acceptance in accordance with the instructions printed on the Form of Acceptance.

(ii) To accept the Offer in respect of less than all your The Body Shop Shares in certificated form

To accept the Offer in respect of less than all your The Body Shop Shares, you must insert in

Box 3A on the enclosed Form of Acceptance such lesser number of The Body Shop Shares in

respect of which you wish to accept the Offer in accordance with the instructions printed thereon.

You should then follow the procedure set out in paragraph (i) above in respect of such lesser

number of The Body Shop Shares. If you do not insert a number in Box 3A of the Form of

Acceptance, or if you insert in Box 3A a number which is greater than the number of The Body

Shop Shares that you hold and you have signed Box 4, your acceptance will be deemed to be in

respect of all The Body Shop Shares held by you.

19


22/132

(iii) To elect in whole or in part for the Loan Note Alternative

To elect for the Loan Note Alternative in respect of some or all of your The Body Shop Shares,

you must complete the Form of Acceptance as set out in paragraph (i) or (ii) above, as appropriate,

and, in addition, complete Box 3B. The number in Box 3B will indicate the number of The Body

Shop Shares for which you wish to receive Loan Notes instead of cash. Such number should not

be greater than the number of The Body Shop Shares inserted or deemed to be inserted in Box 3A

of the relevant Form of Acceptance.If the number of The Body Shop Shares inserted in Box 3B is greater than the number inserted or

deemed to be inserted in Box 3A, it will be deemed to be an election for the Loan Note Alternative

in respect of all The Body Shop Shares in respect of which you have accepted or are deemed to

have accepted the Offer.

In all cases, you must sign Box 4 on the relevant Form of Acceptance including, if you are an

individual, in the presence of a witness who should also sign in accordance with the instructions

printed on it. Any The Body Shop Shareholder which is a company should execute the relevant

Form of Acceptance in accordance with the instructions printed on it.

Unless an exemption under the relevant laws is available, the Loan Note Alternative is not

available to The Body Shop Shareholders in any Restricted Jurisdiction or Japan.

(b) Return of Form of Acceptance

To accept the Offer in respect of The Body Shop Shares held in certificated form, the completed,

signed and witnessed Form of Acceptance should be returned by post or by hand (during normal

business hours) to Lloyds TSB Registrars at The Causeway, Worthing, West Sussex BN99 6DA or

by hand only (during normal business hours) to Lloyds TSB Registrars at Princess House,

3rd Floor, 1 Suffolk Lane, London EC4R 0AX together (subject to paragraph 15(c) below) with the

relevant share certificate(s) and/or other document(s) of title, as soon as possible, and, in any event,

so as to be received not later than 1.00 p.m. (London time) on 3 May 2006. A reply-paid envelope for

use in the UK only is enclosed for your convenience. No acknowledgement of receipt of documents will

be given by or on behalf of LOreal.

Any Form of Acceptance received in an envelope post-marked in a Restricted Jurisdiction or otherwise

appearing to LOreal or its agents to have been sent from any of these jurisdictions may be rejected as an

invalid acceptance of the Offer. For further information on Overseas Shareholders, see paragraph 14 of

this Part II above.

The Form of Acceptance is issued only to the addressee(s) and is specific to the unique designated

account printed on it. The Form of Acceptance is a personalised form and is not transferable between

different accounts. LOreal and Lloyds TSB Registrars accept no liability for any instructions that do not

comply with the conditions set out in this document, the Form of Acceptance and accompanying

materials.

(c) Documents of title

If your The Body Shop Shares are in certificated form, a completed, signed and witnessed Form of

Acceptance should be accompanied by the relevant share certificates(s) and/or other document(s) of title.If for any reason the relevant share certificate(s) and/or other document(s) of title is/are not readily

available or is/are lost, you should nevertheless complete, sign and lodge the Form of Acceptance as

stated above so as to be received by Lloyds TSB Registrars at either of the addresses referred to in

paragraph 15(b) above not later than 1.00 p.m. (London time) on 3 May 2006. You should send with the

Form of Acceptance any share certificates(s) and/or other document(s) of title which you may have

available, accompanied by a letter stating that the remaining documents will follow as soon as possible or

that you have lost one or more of your share certificate(s) and/or other document(s) of title. You should

then arrange for the relevant share certificate(s) and/or other document(s) of title to be forwarded as soon

as possible. If you have lost your share certificate(s) and/or other document(s) of title, you should contact

The Body Shops registrars, Lloyds TSB Registrars, as soon as possible on 0870 600 3964 (or

+44 121 415 7071 if telephoning from outside the UK) requesting a letter of indemnity for the lost share

certificate(s) and/or other document(s) of title which, when completed in accordance with the instructions

given, should be returned by post or by hand to Lloyds TSB Registrars at either of the addresses given in

paragraph 15(b) above.

20


23/132

(d) Validity of acceptances

Without prejudice to Parts B and C of Appendix I to this document, subject to the provisions of the City

Code, LOreal reserves the right to treat as valid in whole or in part any acceptance of an Offer which is

not entirely in order or which is not accompanied by the relevant share certificate(s) and/or other

document(s) of title. In that event, no payment of cash under the Offer will be made and no Loan Notes

will be issued until after the relevant share certificate(s) and/or other document(s) of title or indemnities

satisfactory to LOreal have been received. The invalidity of an election for the Loan Note Alternative

will not affect the validity of an otherwise valid Form of Acceptance and such acceptance will be deemed

to be an acceptance of the basic terms of the Offer for cash.

The Body Shop Shares held in uncertificated form (i.e. in CREST)

(e) General

If your The Body Shop Shares are in uncertificated form, to accept the Offer you should take (or

procure the taking of) the action set out below to transfer The Body Shop Shares in respect of

which you wish to accept the Offer to the appropriate escrow balance(s) (that is, send a TTE

instruction), specifying Lloyds TSB Registrars (in its capacity as a CREST participant under the

Escrow Agents relevant Participant ID referred to below) as the Escrow Agent, as soon as possible

and in any event so that the TTE instruction settles by not later than 1.00 p.m. (London time) on

3 May 2006. Note that settlement cannot take place on weekends or bank holidays (or other times atwhich the CREST system is non-operational) you should therefore ensure that you time the

input of any TTE instructions accordingly.

The input and settlement of a TTE instruction in accordance with this paragraph 15(e) will (subject to

satisfying the requirements set out in Parts B and D of Appendix I to this document) constitute an

acceptance of the Offer in respect of the number of The Body Shop Shares so transferred to escrow.

If you are a CREST sponsored member, you should refer to your CREST sponsor before taking

any action. Your CREST sponsor will be able to confirm details of your Participant ID and the member

account ID under which your The Body Shop Shares are held. In addition, only your CREST sponsor will

be able to send the TTE instruction(s) to CRESTCo in relation to your The Body Shop Shares.

After settlement of a TTE instruction, you will not be able to access The Body Shop Shares concerned in

CREST for any transaction or charging purposes. If the Offer becomes or is declared unconditional in allrespects, the Escrow Agent will transfer The Body Shop Shares concerned to itself in accordance with

paragraph 5 of Part D of Appendix I to this document.

You are recommended to refer to the CREST manual published by CRESTCo for further information on

the CREST procedures outlined below.

You should note that CRESTCo does not make available special procedures, in CREST, for any

particular corporate action. Normal system timings and limitations will therefore apply in

connection with a TTE instruction and its settlement. You should therefore ensure that all

necessary action is taken by you (or by your CREST sponsor) to enable a TTE instruction relating

to your The Body Shop Shares to settle prior to 1.00 p.m. (London time) on 3 May 2006. In this

connection, you are referred in particular to those sections of the CREST manual concerning

practical limitations of the CREST system and timings.(f) To accept the Offer

To accept an Offer in respect of The Body Shop Shares held in uncertificated form, you should send (or, if

you are a CREST sponsored member, procure that your CREST sponsor sends) to CRESTCo a Basic

Offer TTE instruction in relation to such shares. A Basic Offer TTE instruction to CRESTCo must be

properly authenticated in accordance with CRESTCos specifications for transfers to escrow and must

contain the following details:

) the corporate action ISIN number of The Body Shop Shares. This is GB0001083137;

) the number of The Body Shop Shares in respect of which you wish to accept the Offer (i.e. the

number of The Body Shop Shares to be transferred to escrow);

) your Participant ID;

) your member account ID;

21


24/132

) the Participant ID of the Escrow Agent. This is 6RA44;

) the member account ID of the Escrow Agent for the Offer in its basic terms. This is LORBOD01 for

the cash Offer;

) the intended settlement date. This should be as soon as possible and, in any event, not later than

1.00 p.m. (London time) on 3 May 2006;

) the corporate action number of the Offer which is allocated by CRESTCo and can be found by

viewing the relevant corporate action details in CREST;

) input with a standard delivery instruction priority of 80; and

) your contact name and telephone number in the shared note field.

(g) To elect for the Loan Note Alternative

To elect for the Loan Note Alternative in respect of The Body Shop Shares held in uncertificated form,

you should send (or, if you are a CREST sponsored member, procure that your CREST sponsor sends) to

CRESTCo an Alternative TTE instruction in relation to such shares by adopting the same procedures as

apply in respect of a Basic Offer TTE instruction, but with the following variations:

) in the field relating to the number of The Body Shop Shares to be transferred to escrow, you should

insert the number of The Body Shop Shares in respect of which you wish to make an election for the

Loan Note Alternative; and

) the member account ID of the Escrow Agent for the Loan Notes is LORBOD02.

Unless an exemption under the relevant laws is available, the Loan Note Alternative is not available to

any The Body Shop Shareholders in any Restricted Jurisdiction or Japan.

(h) Validity of acceptances

Holders of The Body Shop Shares in uncertificated form who wish to accept the Offer should note that a

TTE instruction will only be a valid acceptance of that Offer as at the relevant closing date if it has settled

on or before 1.00 p.m. (London time) on that date. A Form of Acceptance which is received in respect of

The Body Shop Shares held in uncertificated form will not constitute a valid acceptance and will be

disregarded.

If you are in any doubt as to the procedure for acceptance of the Offer, please contact Lloyds TSB

Registrars by telephone on 0870 609 2158 (or +44 1903 276 342 if telephoning from outside the UK)

or at either of the addresses referred to in paragraph 15(b) above. You are reminded that, if you

are a CREST sponsored member, you should contact your CREST sponsor before taking any

action.

16. Settlement

Subject to the Offer becoming or being declared unconditional in all respects (and except as provided in

paragraph 5 of Part B of Appendix I to this document in the case of certain Overseas Shareholders), settlement of

the consideration to which any The Body Shop Shareholder (or the first named shareholder in the case of joint

holders) is entitled under the Offer will be effected: (i) in the case of acceptances received, complete in all

respects, by the date on which the Offer becomes or is declared wholly unconditional, within 14 days of suchdate; and (ii) in the case of acceptances received, complete in all respects, after such date but while the Offer

remains open for acceptance, within 14 days of such receipt, and in either case in the manner described in

paragraphs 16(a), 16(b) and 16(c) below.

(a) The Body Shop Shares in certificated form (i.e. not in CREST)

Where an acceptance relates to The Body Shop Shares in certificated form, settlement of any cash

consideration to which the accepting The Body Shop Shareholder is entitled will be dispatched by first

class post (or by such other method as may be approved by the Panel) to the accepting The Body Shop

Shareholder or its appointed agents (but not into any of the Restricted Jurisdictions). All such cash

payments will be made in pounds sterling by cheque drawn on a branch of a UK clearing bank.

(b) The Body Shop Shares in uncertificated form (i.e. in CREST)

Where an acceptance relates to The Body Shop Shares in uncertificated form, settlement of the cash

consideration to which the accepting The Body Shop Shareholder is entitled will be paid by means of a

22


25/132

CREST payment in favour of the accepting The Body Shop Shareholders payment bank in respect of the

cash consideration due, in accordance with CREST payment arrangements. LOreal reserves the right to

settle all or any part of the consideration referred to in this paragraph 16(b), for all or any accepting The

Body Shop Shareholder(s), in the manner referred to in paragraph 16(a) above, if, for any reason, it

wishes to do so.

(c) Loan Notes

If a The Body Shop Shareholder validly elects for the Loan Note Alternative (including in respect of The

Body Shop Shares held in uncertificated form) and the relevant Loan Notes are issued as described i