Estée Lauder Ends Puig Tie-Up, Focuses on Turnaround

Key Moments

Strategic Shift Away From Merger Talks

U.S. cosmetics company Estée Lauder has halted merger discussions with Spanish fragrance and beauty group Puig, dropping plans for a combination that would have created a large premium beauty player positioned against L’Oreal.

The two sides had been in talks since at least March, when discussions were publicly disclosed. The proposed transaction would have united Estée Lauder’s portfolio, which includes Tom Ford, Clinique and MAC, with Puig’s brands such as Carolina Herrera and Charlotte Tilbury, which have strong appeal among TikTok influencers and higher-income millennials.

Following news that negotiations had ended, Estée Lauder’s shares climbed more than 10% in extended trading on Thursday. That reaction contrasted sharply with the 10% decline in the stock the day after the companies first confirmed the talks.

Market Reaction and Deal Concerns

Investors welcomed the decision to step back from a deal that some analysts had flagged as risky. Concerns included potential integration challenges, increased pressure on Estée Lauder’s balance sheet and the possibility that management attention could be diverted from its ongoing turnaround efforts.

Analysts broadly endorsed the move to walk away. “We are relieved to hear that the talks… have been terminated,” RBC Capital Markets analyst Nik Modi said. He noted that the timing was problematic in light of Estée Lauder’s substantial restructuring, and that combining two companies led by founding families could complicate governance as both sides might seek significant influence.

Details of the Shelved Combination

The merger under discussion would have formed a $40 billion luxury beauty group, pooling a range of high-end cosmetics, skincare and fragrance labels under one umbrella.

Two sources familiar with the situation said that demands from Charlotte Tilbury, founder of the Charlotte Tilbury brand, which is majority-owned by Puig, added complexity to the negotiations and contributed to making the prospective deal increasingly difficult to execute. Charlotte Tilbury did not immediately respond to a request for comment.

Focus Returns to ‘Beauty Reimagined’ Turnaround Plan

In a statement on Thursday, Estée Lauder emphasized that it is concentrating on delivering its “Beauty Reimagined” strategy. The turnaround program, led by CEO Stephane de La Faverie, is aimed at addressing three consecutive years of annual sales declines and erosion in market share.

The initiative includes stepping up investment in stores while shutting down underperforming locations. “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 the statement.

Earlier in the month, Estée Lauder raised its annual profit outlook and announced plans to cut up to 3,000 additional jobs worldwide as part of an accelerated restructuring effort. Around the same time, Puig reported a slowdown in sales growth for the first quarter in late April.

Ongoing Appetite for M&A

Despite abandoning discussions with Puig, Estée Lauder signaled that mergers and acquisitions remain part of its broader strategy. The company noted that it continues to review potential acquisition and divestiture opportunities.

Estée Lauder has a history of expanding via deals, including its $2.8 billion acquisition of U.S. fashion label Tom Ford in 2022.