US cosmetics maker Estée Lauder and Spanish perfumery Puig ended merger talks that would have created a premium beauty giant better positioned to compete with industry leader L’Oreal.
Estée shares rose over 10% in extended trading yesterday as investors cheered the end of a potential deal that analysts had warned could add integration risk, stretch the company’s balance sheet and distract management from its months-long turnaround plan.
The merger talks, disclosed in March, would have formed a $40 billion luxury beauty group bringing together Estée brands such as Tom Ford, Clinique and MAC with Puig’s brands including Carolina Herrera and Charlotte Tilbury, which are popular with TikTok influencers and affluent millennials.
Estée shares dropped 10% the day after the companies confirmed the talks.
Estée said in a statement the company was focused on continuing to execute its Beauty Reimagined strategy, the turnaround plan under CEO Stephane de La Faverie, aiming to staunch three years of annual sales declines and declining market share.
The plan included increased store investment and closing underperforming outlets.
“We have one of the most powerful portfolios of prestige beauty brands in the world … and we believe we are uniquely positioned to drive sustainable long-term growth globally,” de La Faverie said in a statement.
Two sources familiar with the matter said demands from Charlotte Tilbury, founder of the namesake beauty brand majority-owned by Puig, were among the issues that complicated the talks and made the potential transaction increasingly complex.
Charlotte Tilbury did not immediately respond to a request for comment.
Analysts said the decision to end talks was sound.
“We are relieved to hear that the talks have been terminated,” RBC Capital Markets analyst Nik Modi said.
The timing of the deal was not ideal given Estée’s sizable overhaul, and a combination could become complicated as both founding families would want to have influence over governance decisions, he said.
Earlier this month Estée raised its annual profit forecast and said it would cut up to 3,000 more jobs globally as it accelerates a broader restructuring, while Puig reportedslower sales growth for the first quarter in late April.
Estée, which has a long history of growing through acquisitions, including its $2.8 billion deal for US fashion label Tom Ford in 2022, said it continues to evaluate potential acquisitions and divestitures.
