The Franco-European distribution group PPR, which owns the perfume and cosmetics company YSL Beauté, has signed a deal with L'Oréal transferring YSL and some other perfumes and cosmetics brands to L'Oréal in an operation worth €1.5bn. The acquisition is the largest made by L'Oréal since it bought Body Shop.
The move has come at a time when market speculation was focused on a possible link-up of YSL and Clarins and when some investor groups had been criticising L'Oréal for its alleged lack of aggressiveness in its acquisitions policy and which - they claimed - slowed the group's rate of growth. The accord between L'Oréal and PPR is complex. YSL Beauté's three main brands - Yves Saint Laurent, Boucheron and Stella McCartney - will remain with PPR as brands but PPR has handed over the commercial exploitation of Yves Saint Laurent and Boucheron to L'Oréal under a long-term licence arrangement. The licences on Stella McCartney, Oscar de la Renta and Ermenegildo Zegna in the perfumes and cosmetics sector will also be transferred. L'Oréal has also purchased the shares of YSL Beauté for €1.15bn while PPR will retain Yves Saint Laurent couture.
PPR appears to have made the decision to talk to L'Oréal after a period in which it had made clear that its perfumes and cosmetics interests were below critical size and did not sit comfortably with the other businesses. YSL Beauté reported sales of €625m in 2006 with operating profits of €32m - relative to PPR's total sales of €18bn. A link-up with Clarins was reportedly envisaged. Clarins posted sales of close to €1bn in 2006. However, any merger did not solve Clarins's problem in the US market because in 2006 Procter & Gamble had taken over distribution of Clarins's perfumes - Hugo Boss, Lacoste and Valentino - in America.
Later, L'Oreal said it intends to make YSL Beaute as profitable as its own major cosmetics brands. Jean-Paul Agon, director-general, said it had been expected that the acquisition would either have some very slight effect on the level of earnings per share (EPS) in 2008 or would be neutral in its impact. He added that the most important factor for them was the prospect of accelerated growth for YSL Beaute.