PARIS, France: Kering has agreed to sell its beauty business to L'Oréal for 4 billion euros (US$4.66 billion), marking one of the first major strategic moves by new CEO Luca de Meo as he races to cut debt and refocus the French luxury group on its struggling core fashion labels.

The deal hands L'Oréal control of Kering's fragrance line Creed and long-term licenses to develop perfumes and cosmetics for Gucci, Bottega Veneta and Balenciaga under an exclusive 50-year agreement.

The rights to Gucci fragrances are currently held by Coty, whose contract is due to expire around 2028, when the new L'Oréal license will begin.

For Kering, the sale marks a dramatic U-turn from the strategy of former CEO François-Henri Pinault, whose family controls the group and had bet on building a standalone beauty division to reduce reliance on Gucci.

De Meo, who took over in September, is now unwinding that expansion. The company's beauty business, created in 2023 after acquiring Creed for 3.5 billion euros, has since failed to take off, posting a 60 million euro operating loss in the first half of this year.

The sale will significantly ease pressure on Kering's balance sheet. The group's net debt stood at 9.5 billion euros as of June, with another 6 billion euros in lease liabilities, prompting investor anxiety and ratings risks.

"We believe selling Kering Beauté at around the same price paid for Creed two years ago is bitter but necessary medicine," analysts at Bernstein wrote.

Analysts at RBC said the move signals a return to a more capital-efficient model. "A move back to beauty licensing would be less capital intensive, less operationally geared, and arguably higher margin," they said, adding that it "frees up investment headroom toward Kering's priorities in soft luxury."

De Meo has told shareholders he plans to make "difficult decisions" to strengthen the group's finances. Kering has postponed its planned takeover of Valentino and is exploring real estate sales to raise cash.

Meanwhile, Gucci — which generates the bulk of Kering's profit — continues to struggle with sluggish demand in China and slower global sales, intensifying the need to deleverage.

L'Oréal, the world's largest beauty company, said the deal would bolster its Luxe division, which already includes blockbuster perfume licenses such as Yves Saint Laurent, acquired from Kering in 2008 for 1.15 billion euros.

As part of the transaction, the two groups will also create a joint venture to offer services and experiences for high-end clients.

"This is a powerful strategic win for L'Oréal," said Bruno-Roland Bernard, a consultant and adjunct professor at the Institut Français de la Mode. "They are taking advantage of a favorable bargaining position — with limited competition and a Kering under time pressure."

The deal, expected to close in the first half of 2026, will be L'Oréal's largest acquisition ever, surpassing its $2.5 billion purchase of Aesop last year.