Estee ‌Lauder and Puig in merger talks to build luxury beauty giant worth USD40bio

When Estee ‌and Madrid-listed Puig disclosed on Monday merger talks that would create a luxury beauty giant with a combined market capitalisation of around $40 billion and bring together brands such as Tom Ford, Carolina Herrera, Rabanne and Clinique everyone started talking about risks even those outside retail luxury industry. 

​The talks come about two months after Estee's CEO Stephane de La Faverie expanded a significant turnaround push to staunch three years of annual sales ​declines and a contracting market share, said Reuters. Estee Lauder's bet on Puig merger would put it in a direct fight with sector leader L'Oreal's ​premium fragrances, but could complicate the U.S. company's turnaround plans just uncertain outlook for travel retail, according to Reuters.

A takeover of Puig would lift its global market share in the coveted premium fragrance category to 15% from 6%, second only to L'Oreal's 16%, Morningstar analysts noted.
In the United States, prestige ​fragrance grew 5% by value last year and ended the year as the second‑largest category in prestige retail, data from Circana showed.
Independent players such as France-based Parfums de ‌Marly and ⁠Serge Lutens and newer brands such as Nishane and Xerjoff, as well as celebrity‑backed labels present another challenge.
"The deal would further tilt (Estee's) portfolio toward fragrance, where growth has been strong, but competition from indie brands is intensifying, L'Oreal is stepping up its efforts and category momentum appears later-cycle," said Jefferies analyst Sydney Wagner in a note. A potential transaction funded evenly with equity and debt would require Estee Lauder to raise about $6 billion in new borrowing, according to estimates ​by JPMorgan analysts. That could push its ​leverage to about 4.3 times ⁠before any synergies from the deal, they said in a note.
​
Credit ratings agencies Moody's and S&P Global both assign the U.S. company a negative outlook.
Estee's shares were down nearly 6% on Monday, while Puig's shares jumped 13%. Before news ​of the merger talks broke, the Spanish firm's shares had fallen nearly 39% from the 24.50 euros per ​share price of its ⁠initial public offering in May 2024.