Report by Renta 4
Puig Brands announced yesterday afternoon (after the Spanish market had closed) that talks with Estée Lauder had ended without a merger agreement being reached. The company did not give any reasons for breaking off the negotiations.
According to Puig, this decision does not alter its strategy, which remains focused on the premium segment, brand building, creativity, agility and long-term value creation. In the statement, it notes that its solid capital structure gives it the flexibility to pursue a range of strategic options aligned with its long-term priorities. Puig will continue with its selective, value-oriented M&A approach to further complete its portfolio.
Valuation: The news is negative; over the last two months, everything pointed to a merger of the two groups. Since the talks became official (23 March), Puig’s share price has risen by 15% (from €15.5 to €17.7 per share). We expect to see a correction today back towards pre-rumour levels. The all-time low is €13.2 per share.
We believe that Puig should react swiftly to regain market confidence. The failure to merge with Estee Lauder follows the attempt to acquire the Kering Beauty brands (ultimately acquired by L’Oreal). To this end, we believe Puig needs to explain to the market the reasons for ending the talks, relaunch its Capital Markets Day (postponed due to the negotiations with EL), and perhaps announce a share buyback plan to demonstrate to the market the company’s undervaluation.
A significant price correction could present a buying opportunity in the stock. We reiterate our OVERWEIGHT recommendation with a target price of €20.80 per share.
