End to the process that has been the talk of the stock market world for the last few months: the Catalan company Puig Brands announced on Thursday night that it has broken off talks with The Estée Lauder Companies, with whom it was negotiating a merger that would have created a cosmetics giant with a market capitalization of over 35,000 million euros (and more than 18,000 million euros in sales).
"Such discussions have ended and the companies have not reached an agreement for a potential merger of their respective businesses," the Catalan company announced in its statement sent to the National Securities Market Commission (CNMV) where, as CEO Jose Manuel Albesa adds, they value "the enriching conversations that have been held with The Estée Lauder Companies", even though these have derailed.
Albesa, who has been leading the group since March when he replaced Marc Puig (who was then the CEO), ensures that they will continue with the company's strategic plan without changes and safeguarding the interests of all shareholders. He also argues that their capital structure gives them "flexibility to undertake a wide range of strategic alternatives aligned with our long-term priorities". And they maintain their strategy to create value through mergers and acquisitions (M&A) that continue to complement the group's portfolio of fashion, fragrance, and cosmetic brands, "with a highly selective approach".
An operation that came to light on March 23 when Puig was forced to confirm what the Financial Times had reported a few minutes earlier, from sources close to The Estée Lauder: both cosmetics giants were negotiating a "possible business combination". However, as also later confirmed by the American cosmetics company, there was no final decision at that time. According to the economic media, the merger of Puig and Estée Lauder would result in a company worth 40,000 million dollars (34,500 million euros at the exchange rate).
Considering the size of Estée Lauder compared to Puig, analysts interpreted the operation more as a purchase by the former rather than a merger, so the latest market speculations revolved around what form the American company's offer for the shares of the Catalan company would take, with the price estimated between 18 and 19 euros, according to various economic media.
In one of their latest reports in April, the firm Jefferies presented the outcome of the merger as a company worth 50,000 million euros, through a merger with 80% in shares and 20% in cash for the shareholders of the Catalan company. The equation included giving Marc Puiga seat on the board of directors of the resulting company.
The family control was one of the aspects of the operation that Jefferies analysts had already assessed after the negotiations were leaked: the merger would give the Estée family a 26.7% economic control of the new company, compared to 21.7% for the Puig family. Before Goldman Sachs entered the negotiation field, advising Puig, the American firm also evaluated the situation highlighting the family nature of both companies: both companies are mainly controlled by the founding families, with Puig retaining 93% of the voting rights of the Catalan group, while the Lauder family owns 82% of their own. This would shape the course of operations. In fact, Renta 4 initially questioned the Puig family's relinquishment of independence and control of a family business with over 100 years of history.
Nevertheless, the Spanish company and Goldman Sachs highlighted the logic of the merger of both companies based on the combination of markets where they are present (for Estée Lauder, the US represents 26% of revenues compared to Puig's 12%; followed by China with 25% compared to Puig's 2%; and Europe, contributing 38% of Estée Lauder's sales compared to Puig's 55%) and the nature of their service lines (Puig's strength in premium fragrances and Estée Lauder's in cosmetics). Overall, "a possible combination would result in the second-largest global player in fragrances, with a combined market share of 15% (compared to L'Oréal's 16%, which holds the top spot in the category)", concluded Goldman Sachs.
It did not materialize, but analysts' consensus considered the merger of both companies to be good and timely, given the current market, which is very challenging for large cosmetics firms amid a global decline in beauty and luxury consumption. Consolidation and size are key in this context, as pointed out by DWS from Deutsche Bank. Barclays did not share the same opinion, as they believed that the operation, despite making financial sense, "would be dilutive to Estée Lauder's strategy, which, after a period of declining sales, was starting to recover.