Estée Lauder Companies and Spanish beauty conglomerate Puig in separate statements Monday confirmed they are in discussions to merge.
“No final decision has been made, and no agreement has been reached,” each company said.
A tie-up of the two would create a beauty and fragrance giant encompassing luxury and mass-market brands, which Jefferies analysts led by Sydney Wagner estimate would be valued at more than $40 billion.
In its most recent full fiscal year, Estée Lauder net sales fell 8% year on year to $14.3 billion. At Puig, reported net revenue grew nearly 5% last year to more than 5 billion euros (nearly $6 billion at press time).
Estée Lauder’s portfolio includes its namesake plus Clinique, MAC, La Mer, Bobbi Brown Cosmetics, Aveda, Jo Malone London, Bumble and Bumble, Tom Ford, Le Labo, Too Faced and Deciem brands The Ordinary and NIOD, among others. Skin care accounted for about half of the company’s sales last year, with makeup at 29%, fragrance 17% and hair care 4%.
Puig’s portfolio includes its own brands, including Rabanne, Carolina Herrera, Charlotte Tilbury, Jean Paul Gaultier, Nina Ricci, Dries Van Noten, Byredo and Penhaligon’s, among others, and it licenses beauty brands like Christian Louboutin, Banderas and Adolfo Dominguez. Fragrance and fashion accounted for 72% of its portfolio, with makeup 17% and skin care 11%.
Combining would diversify both companies, according to Jefferies analysts, who estimate the balance at the new entity would shift to 38% skin care, 34% fragrance, 26% makeup and 3% hair.
The deal may look better on paper than in real life, though, analysts said. It would keep Estée Lauder “fully within prestige” rather than adding more accessible brands at a time when shoppers are seeking value, and it could interrupt the company’s turnaround momentum, per Jefferies’ report.
“While Charlotte Tilbury is a strong, globally relevant brand with durable equity, we would have preferred capital deployed toward a more nascent, under-distributed color cosmetics asset that could expand whitespace and enhance future growth optionality,” Jefferies said.
Estée Lauder downsized about a year ago, resorting to 7,000 layoffs globally, part of a cost-cutting effort that has buoyed some investors, Wells Fargo analysts led by Chris Carey said in a Tuesday client note. They also speculated that combining could derail the progress Estée Lauder is making.
“A key debate we heard on Puig: yes, likely accretive, but if the core [Estée Lauder] opportunity is so good, why is such a deal necessary and does it add execution risk?” Wells Fargo said.
