December 3, 2022

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$2.8b acquisition of Tom Ford is a ‘huge positive’ for Estée Lauder

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© Reuters. $2.8b acquisition of Tom Ford is a ‘huge positive’ for Estee Lauder (EL) – analyst

By Senad Karaahmetovic 

Yesterday, Estée Lauder (NYSE:) announced a “transformative deal” to acquire Tom Ford for $2.8 billion. The company will pay about $2.3B, in addition to $300M in deferred payments to sellers starting from July 2025, as well as including a $250M payment from Marcolin S.p.A. to extend the long-term global eyewear license for the brand.

“We are incredibly proud of the success TOM FORD BEAUTY has achieved in luxury fragrance and makeup and its dedication to creating desirable, high-quality products for discerning consumers around the world,” said Fabrizio Freda, President and Chief Executive Officer, The Estée Lauder Companies.

EL said it will fund the acquisition through a combination of cash, debt, and deferred payments. Tom Ford, the founder and CEO of Tom Ford International, will continue to serve as the brand’s creative visionary after closing and through the end of calendar 2023.

“I could not be happier with this acquisition as The Estée Lauder Companies is the ideal home for the brand. They have been an extraordinary partner from the first day of my creation of the company and I am thrilled to see them become the luxury stewards in this next chapter of the TOM FORD brand,” Ford added.

D.A. Davidson analysts think the Tom Ford deal is a “huge positive for EL.” EL had to buy Tom Ford, the analysts argue because “if Kering had acquired Tom Ford, Kering could have brought the beauty business in-house at some point in the future, removing one of EL’s highest growth revenue streams.”

Bank of America analysts raised the price target on EL stock to $230 per share from the prior $218 and weighed in positively on the deal.

“This deal enables EL to keep the TOM FORD beauty line (current contract expires in 2030), capture a larger share of the profits and incentivizes them to intensify efforts to expand their footprint in Luxury beauty. At the same time, licensing the non-beauty components of the business minimizes integration/execution risk,” the analysts said in a note.

Raymond James analysts note that the Tom Ford acquisition is EL’s largest deal to date, “with now full control of a fast-growth brand pivotal to what we expect will be EL’s eventual recovery in China and travel retail.”

Estée Lauder stock is nearly unchanged in pre-open Wednesday trading.

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