Estee Lauder Companies Inc (NYSE:EL, XETRA:ELAA) has confirmed it is in discussions regarding a potential business combination with Spanish fashion and beauty company Puig, as the companies explore a possible merger of their operations.
In a statement on Monday, Estée Lauder said no final decision has been made, and no agreement has been reached.
Jefferies analysts described the potential transaction as “financially attractive on paper” while raising questions about its strategic fit.
The firm estimated the deal could generate roughly 15% earnings per share accretion for Estée Lauder before synergies, though it views the combination as “less compelling from a portfolio construction perspective.”
According to the analysts, a merged entity could be valued at more than $40 billion, with its own estimate at about $48 billion based on an assumed 30% premium for Puig.
The firm outlined that the combination would significantly alter Estée Lauder’s category mix. Currently, the company is weighted toward skincare, which accounts for roughly half of its sales, while Puig derives the majority of its revenue from fragrance. A combined group would shift toward a more balanced exposure across skincare, fragrance, and makeup, which Jefferies wrote would “increase diversification.”
From a financial standpoint, Jefferies estimated accretion of about 14.6% for Estée Lauder under its base assumptions, rising to roughly 35% if synergies are included. “We have accretion of 14.6% for EL on this logic, pre synergies,” the analysts wrote.
However, the firm cautioned that the transaction could add complexity at a time when Estée Lauder is undergoing a turnaround. Jefferies said the deal “does not address value-mixing behavior or potential category rotation” and would further increase exposure to prestige fragrance and skincare, categories it described as coming off peak growth rates.
“We view a potential Puig transaction as strategically coherent but only modestly de-risking,” the analysts wrote, adding that it “keeps EL fully within prestige” rather than expanding into more accessible price tiers. They also noted that the combination could “further tilt the portfolio toward fragrance,” where competition is intensifying and growth may be entering a later stage of the cycle.
Jefferies added that the shift toward prestige skincare could come at a time when “trade-down pressures are becoming more evident,” suggesting limited insulation if demand moderates.
Shares of Estée Lauder fell 8% in early trade on Tuesday.