Gucci-owner Kering sells beauty unit to L'Oreal for $4.7 billion as de Meo targets debt pile

By Tassilo Hummel and Dominique Patton

PARIS (Reuters) -Gucci owner Kering has agreed to sell its beauty business to L'Oreal for 4 billion euros ($4.7 billion), the first major gambit by new CEO Luca de Meo as he stamps his mark on the luxury group and cuts back its debt pile.

Under the deal, French beauty giant L'Oreal will acquire Kering's fragrance line Creed, as well as exclusive rights to develop fragrance and beauty products for 50 years under Kering's fashion labels including Bottega Veneta and Balenciaga.

That marks a sharp swerve in direction by de Meo less than two months after taking the helm, as he unwinds one of his predecessor Francois-Henri Pinault's biggest strategic pivots. Pinault, whose family controls the group, spearheaded the acquisition of Creed in 2023 for 3.5 billion euros.

Analysts said L'Oreal had struck a savvy deal for the assets, while de Meo was hitting a key target: quickly cutting high debt levels that had become a mill stone for the group.

Shares in Kering jumped 4.8% on Monday while L'Oreal rose 1.2%. 

"We believe selling Kering Beauté at around the same price paid for Creed two years ago is bitter but necessary medicine," analysts at Bernstein said.

MORE DEALS TO COME FOR KERING AND DE MEO?

Under the deal, L'Oreal will also get the Gucci licence for 50 years, once a deal with Coty, which analysts believe is set to last until 2028, expires. Coty shares were down 4% in New York trading following the news. 

Commenting on the deal, de Meo told the Financial Times on Monday that "you'll see others", adding that his priority was to focus on the areas where Kering has "critical size and skills". 

The paper also cited de Meo as saying he won't "close the door" on a potential sale of Kering's eyewear division, the other pillar of the company's recent diversification push. 

While the idea of selling the beauty business had been identified as an option before de Meo officially took charge in September, the Italian dramatically accelerated discussions with L'Oreal this month, two sources familiar with the matter said.

Kering beauty will be L'Oreal's largest acquisition to date, bigger than its purchase of Australian brand Aesop for $2.5 billion in 2023. The deal makes sense strategically, Bernstein analysts said, with Creed one of the most exciting brands in the growing luxury fragrances area.

SIGNIFICANT STEP TOWARD REDUCING DEBT

The sale is a significant step towards reducing Kering's net debt, which stood at 9.5 billion euros at the end of June, on top of 6 billion euros in long-term lease liabilities.

Kering set up its beauty business in 2023 after acquiring perfume maker Creed to cut its reliance on star brand Gucci, which accounts for most of its profits.

But the French conglomerate has struggled to ramp up the business. The division that comprises beauty operations reported a 60 million euro operating loss for the first half of the year.

Kering is also battling weaker growth at Gucci as demand in the key Chinese market slows. Gucci's revenue slumped 25% year-on-year in the last reported quarter, piling pressure on Kering to deleverage to avoid more credit downgrades. 

De Meo had told shareholders he planned to take some difficult decisions to reduce debt at the group, including rationalising and reorganising where necessary.

The company has also postponed a plan to fully acquire Italian fashion brand Valentino, and aims to sell stakes in its real estate to raise cash.

'PUNCHY' PRICE-TAG JUSTIFIED FOR L'OREAL

L'Oreal, the maker of Maybelline make-up and CeraVe skincare, already produces blockbuster perfumes under the Yves Saint Laurent label after acquiring rights to the brand from Kering for 1.15 billion euros in 2008. The two companies also said they were setting up a joint venture to provide experiences and services for luxury clients.

Bruno-Roland Bernard, a consultant and adjunct professor for corporate finance and luxury management at the Institut Francais de la Mode, said L'Oreal would be excited to gain licenses to Kering's "prestigious yet relatively underdeveloped brands".

"It's also possible they are taking advantage of a favourable bargaining position - with limited competition: who has the credentials and the firepower to deal with a Kering under time pressure?" he said.

It is not clear where the deal leaves talks between Armani Group and L'Oreal, which was named in the will of late designer Giorgio Armani as one of the preferred buyers for a minority stake in his fashion house.

Kering was advised by Evercore and Centerview, and L'Oreal by Bank of America and Rothschild. The deal is expected to close in the first half of 2026. 

($1 = 0.8576 euros)

(Reporting by Dominique Patton and Tassilo Hummel in Paris, Anusha Shah in Bengaluru; Additional reporting by Mathieu Rosemain; Editing by Louise Heavens and Susan Fenton)