How Estée Lauder and Puig Could Create a $40bn Beauty Giant

US cosmetics brand Estée Lauder is in the process of discussing a potential merger with Spanish company Puig, the brand behind best-selling fragrances like Rabanne and Jean Paul Gaultier.

Estée Lauder is one of the global leaders in skin care, makeup and fragrances, with a portfolio that includes Clinique, Bobbi Brown and Tom Ford Beauty.

While no final decision has been made, the potential deal could establish a luxury beauty enterprise with an estimated value of US$40bn, strengthening both companies’ positions in the global fragrance market.

In a statement regarding the merger, Estée Lauder states “No final decision has been made[...] Unless and until an agreement is signed between the companies, there can be no assurances regarding the deal or its terms.”

News of the potential merger has created uncertainty in the market, with Estée Lauder’s shares falling 7% following the announcement.

Restructuring for profit

Estée Lauder reported a loss of US$1.13bn in 2025, citing a fall in travel retail sales for all geographic regions.

In 2023, the company first announced its Profit Recovery and Growth Plan, an initiative designed to transform the brand’s operating model and improve sales growth through restructuring.

While the strategy was designed to alleviate financial losses, the company predicts that the impact of 2025’s loss may continue into 2026.

The process saw Estée Lauder spend US$1.14bn on job cuts, contract terminations and outsourced tech.

In February 2026, the company declared its interest in mergers and acquisitions, suggesting it could accelerate the business and return to a position of profitability, all during the restructuring.

Prior to the restructuring, in a report of its fiscal second quarter for 2026, Estée Lauder reported that fragrance was the brand’s only growing division, highlighting the Jo Malone London brand as a key driver.

Estée Lauder sought to capitalise on this success by introducing an AI-powered scent advisor experience, designed to suggest a fragrance based on descriptions from users.

Growth and the ‘lipstick effect’

The merger discussion comes at a time of growing demand for fragrance products in the personal care industry. The category has seen several years of steady growth following the pandemic and has since remained a profitable staple within the beauty market.

A possible explanation for the recent uptake in fragrance sales could be explained by the Estée Lauder-coined “lipstick effect”, an economic indicator that describes how consumers cut back on larger purchases while increasing spending on small indulgences during financial uncertainty.

Describing the phenomenon, Amaury De Vallois, Executive VP for Coty (UK, US, Canada and Australia), says: “Over the past years, we have seen a clear evolution of the traditional lipstick effect into a fragrance effect: people choosing scents as their go-to emotional lift. Fragrance delivers the strongest return on mood for a manageable spend.”

The term was coined by Leonard Lauder of Estée Lauder in 2008, after observing an increase in lipstick sales following the US 9/11 attacks.

Many have seen this effect as an opportunity for growth, with brands prioritising fragrance sales to enhance their beauty portfolios. In 2026 alone, companies like Givaudan, Croda and Symrise have reported strong performance and growth in their respective fragrance segments.

Provided the merger with Puig takes place, an expanded fragrance portfolio could see Estée Lauder competing with luxury scent producers like L’Oréal and LVMH, establishing the brand as a leader in the global fragrance market.