Middle East war clouds Puig outlook, complicating Estée Lauder deal hopes
Estée Lauder’s Pursuit of Puig Amid Geopolitical and Financial Headwinds
By Arriana McLymore
Puig’s Slowing Growth and the Impact of Middle East Conflict
NEW YORK, April 29 (Reuters) - Estée Lauder investors hoping for stellar results from the company's buyout target Puig were disappointed on Tuesday, when the Spanish luxury beauty company flagged its slowest quarterly growth since the throes of the COVID-19 pandemic.
While Puig maintained its full-year outlook, it warned that the war in the Middle East was hurting demand, and would likely do so next quarter. That caution matters for Estée, which is hoping Puig’s resilient margins and strong cash flow can help fuel its own turnaround after a prolonged sales slump.
Strategic Rationale for the Deal
Estée is drawn to Puig's buzzy brands including Carolina Herrera and Charlotte Tilbury - popular with TikTok influencers and well-to-do millennials - and sees them as a way to compete better with French heavyweight L’Oréal. Estée is considering a takeover bid for all of Puig's Class B shares at 18 to 19 euros ($21-$22.20) a share, Reuters reported Wednesday.
New CEO Jose Manuel Albesa said on Tuesday merger talks were "ongoing."
Risks and Investor Concerns
But Puig generates a tenth of its sales from travel retail, leaving it exposed to swings in airport shopping and international travel. And Estée shareholders remain unconvinced the tie‑up would significantly narrow the gap with L’Oréal, particularly as Estée continues restructuring and sales momentum remains fragile.
Estée has cut 7,000 jobs and streamlined brands, but its stock is down 1% since news of the merger talks emerged on March 23.
Balance Sheet Pressure
Balance‑sheet pressure adds to investor unease. Estée’s net debt stands at nearly five times annual EBITDA, limiting flexibility should this large acquisition fall short of expectations. By contrast, L’Oréal’s net debt is just 20% of EBITDA.
Estée reports January-March results on Friday. Analysts polled by LSEG expect a 3.9% rise in sales from a year earlier, when revenue plunged 10%, though growth would slow from the previous quarter.
A Deal Will Test Execution, Debt Discipline
L’Oréal’s Competitive Advantage
L’Oréal has spent years widening its lead in premium beauty, bolstering a broad portfolio across skincare, makeup and high‑margin fragrance, including acquisitions such as Kering’s perfume assets. Its Luxe division, home to Lancôme, generated $18.3 billion in sales last year and more than a quarter of group profit.
Like Puig, L’Oréal has flagged war‑related pressure, particularly in the UAE, and expects a bigger impact in the second quarter. Still, it delivered its fastest quarterly sales growth in two years and struck an upbeat tone on demand.
Estée’s Struggle to Compete
Estée has struggled to keep pace, weighed down by weak sales in China, reliance on travel retail and uneven demand for makeup. Even combined, Estée and Puig would post about $20.6 billion in sales, far short of L’Oréal’s total annual revenue of $51.6 billion.
Still, a $40 billion merger would give Estée a fighting chance, lifting Estée’s margins to an estimated 15.6%, from about 13.8% currently.
Analyst Perspective
“They need to preserve what makes each company great,” said TD Cowen analyst Oliver Chen, pointing to Estée’s brand portfolio and Puig’s strength in luxury fashion and fragrance.
(Reporting by Arriana McLymore in New York City; Editing by Sayantani Ghosh and Nick Zieminski)
