On October 19, French luxury group Kering agreed to sell its beauty unit to L’Oreal for €4 billion, approximately $4.66 billion. This significant transaction marks a critical move by Kering’s new CEO, Luca de Meo, to address the company’s substantial debt while refocusing on its primary fashion business.
Kering’s Strategic Shift to Reduce Debt
The sale includes Kering’s fragrance brand Creed and long-term licenses for fragrance and beauty products for its labels like Gucci, Bottega Veneta, and Balenciaga. L’Oreal’s acquisition allows it to develop fragrances for these prestigious brands under a 50-year exclusive license. Currently, Gucci’s fragrance rights are held by Coty, set to expire around 2028.
- Sale Amount: €4 billion ($4.66 billion)
- Brands Involved: Creed, Gucci, Bottega Veneta, Balenciaga
- Exclusive License Duration: 50 years
This transaction is vital for Kering, aiming to lower its net debt of €9.5 billion reported at the end of June. Additionally, Kering faces €6 billion in long-term lease liabilities, raising concerns among investors. Kering’s flagship brand, Gucci, experienced a 25% revenue drop year-over-year last quarter, further emphasizing the urgent need for financial restructuring.
L’Oreal’s Largest Acquisition to Date
L’Oreal has made headlines with this acquisition as it represents the largest deal in the company’s history, eclipsing its $2.5 billion purchase of Aesop in 2023. L’Oreal is already a strong player in the beauty market, featuring renowned perfumes such as those from Yves Saint Laurent, acquired from Kering in 2008 for €1.15 billion.
In recent statements, de Meo indicated his intention to make challenging decisions to alleviate Kering’s debt, which will include a rationalization of its operations. The beauty business was initially established in 2023 when Kering acquired Creed in an effort to diversify from its reliance on Gucci. However, the unit reported a €60 million operating loss in the first half of the year.
Looking ahead, L’Oreal appears poised for further acquisitions, as it has also been approached regarding a minority stake in the Armani Group, named in the will of the late designer Giorgio Armani.
Through this sale, both Kering and L’Oreal aim to fortify their market positions and navigate the evolving landscape of luxury goods and beauty products.
