Renta 4 | According to a regulatory announcement issued by the company itself, it is in talks with Estée Lauder regarding a potential merger. According to the same information, no decision has been taken and no agreement has been reached at this stage, and neither the transaction nor its terms can be guaranteed. If the deal goes ahead, the resulting company could have a market capitalisation exceeding €35 billion, with sales of over €18 billion.
Assessment: It is worth noting that Puig went public just two years ago with a valuation of €13.9 billion, having fallen by more than 35% since then. Similarly, Estée Lauder has been facing difficulties, having lost almost 80% of its value since its 2021 highs and 50% over the last two years, penalised by sales that have barely grown in the last five years and margins that have been halved.
Although Estée Lauder is in the midst of a restructuring process to overcome the operational weakness of recent years, we believe the fit between the two companies is good, with fragrances accounting for over 70% of Puig’s sales (€3,646 million) and 17% of Estée Lauder’s (~€2.1bn), make-up 17% (€845m) and 30% (~€3.6bn) respectively, and skincare 11% (€551 million) and 49% (~€5,969 million), resulting in a fairly balanced portfolio by business line and geography, helping to reduce Estée Lauder’s excessive reliance on China (~15% of sales) and the concentration of both companies on a few brands such as Carolina Herrera, Jean Paul Gaultier, Rabanne and Charlotte Tilbury in the case of Puig, and Estée Lauder, La Mer, Clinique, MAC and Jo Malone in the case of the US firm.
In terms of operational synergies regarding both revenue and costs, it is difficult to predict the outcome for two culturally disparate companies, although Puig has an excellent track record of M&A integration, so we are positive on this front. Doubts may arise, on the one hand, regarding the Puig family’s relinquishment of independence and control of a family business with over 100 years of history, having taken it public just two years ago and following the replacement of Marc Puig by José Manuel Albesa as the new CEO; and on the other hand, regarding the customary approval from antitrust authorities in the US luxury cosmetics market, given that Estée Lauder is one of the leading companies in the sector and Puig’s Charlotte Tilbury is the third-largest brand in that segment.
In conclusion, we believe this is positive news that confirms Puig’s appeal in the market, although it is difficult to make a quantitative assessment without knowing the hypothetical exchange ratio. From our perspective, taking into account quantitative factors (market cap, growth, margins) and qualitative factors (geographical and competitive positioning, scale, brand image, etc.) and assuming a share swap, we would expect the swap ratio to be around 25%-30%. In any case, should an agreement be reached, given the Company’s shareholding structure, the final decision will rest with the Puig family.
We reiterate our recommendation with a Target Price of €22.10 per share.
