Gucci owner Kering said on Sunday it has agreed to sell its beauty business to L'Oreal for 4 billion euros ($4.66 billion), as new CEO Luca de Meo moves to tackle the luxury group's high debt and refocus on its core fashion business.
Under the deal, French beauty giant L'Oreal will acquire Kering's fragrance line Creed, as well as rights to develop fragrance and beauty products under Kering's fashion labels Gucci, Bottega Veneta and Balenciaga under a 50-year exclusive license. The license for Gucci fragrances is currently held by Coty and the new deal will commence when that expires, believed by analysts to be in 2028.
The sale is a major 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 which have sparked investor concern, Reuters reported.
The company has struggled to reverse declining growth at its largest brand Gucci, which was hit hard by slowing demand in the key Chinese market.
With the deal struck less than two months after taking over the helm, de Meo is unwinding one of the biggest strategic pivots made by his predecessor Francois-Henri Pinault, whose family controls the group, in recent years.
Kering set up its beauty business in 2023 after acquiring perfume maker Creed for 3.5 billion euros in an effort to diversify and reduce its reliance on its Gucci brand, which accounts for most of its profits. But the group has struggled to ramp up the business, posting a 60 million euro operating loss for the first half of the year.
Gucci's revenue meanwhile plummeted 25% year-on-year in the last reported quarter, increasing the pressure on Kering to deleverage to avoid further credit downgrades.
De Meo, who took over as CEO in September, had told shareholders he planned to take some difficult decisions to reduce debt at the group, including rationalizing and reorganizing where necessary.
L'Oreal, the world's biggest dedicated cosmetics and beauty player, 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 deal for Kering beauty will be L'Oreal's largest to date, bigger than its purchase of Australian brand Aesop for $2.5 billion in 2023.
L'Oreal, which said there were "plenty" of acquisitions being looked at this year, has also been approached by representatives of Armani Group, Reuters reported this month, after the beauty conglomerate was named in the will of late designer Giorgio Armani as one of the preferred buyers for a minority stake in his fashion house.
