Estée Lauder and Puig have confirmed they are in talks over a potential business combination in a move that could create a beauty group worth more than $40bn.

Estée Lauder said it is discussing a deal under which the two companies would “potentially merge their businesses”, but stressed that no final decision has been made and no agreement has been signed.

Reuters reported that the tie-up would create one of the biggest players in global prestige beauty.

For retail, the scale of the proposed deal is the big headline. A combination would bring together Estée Lauder brands including Estée Lauder, Clinique, MAC, La Mer and Tom Ford Beauty with Puig-owned labels such as Charlotte Tilbury, Rabanne, Carolina Herrera and Jean Paul Gaultier, creating a much broader fashion, fragrance and beauty portfolio under one roof.

The talks land at a time when beauty groups are under growing pressure to get bigger, sharpen their brand portfolios and protect growth as consumer demand softens after the post-pandemic boom.

The proposed combination would strengthen both groups in fragrance and give Estée Lauder greater scale, as it works through a wider turnaround.

Investors reacted sharply to the news. Estée Lauder shares fell 7.7 per cent on Monday after the talks emerged, while Puig’s US-listed shares rose 11 per cent, pushing its market value above $11bn, according to Reuters.

Estée Lauder has been trying to rebuild momentum after a prolonged period of weaker trading, while Puig has been expanding its beauty and fragrance platform through acquisitions and reported more than €5bn in revenue last year.

For now, though, both companies are keeping the brakes on expectations. Estée Lauder said there can be “no assurances” regarding any transaction or its terms unless and until an agreement is signed. Puig has taken the same line, making clear that while talks are live, a deal is far from guaranteed.

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