Estee Lauder envies Tom Ford’s fragrance but likes her clothes?

Of Andrea Felsted

Beauty is in the eye of the beholder. The saying will be true if Estee Lauder Cos. acquires Tom Ford for $3 billion.

While the cosmetics group may want full control of Tom Ford’s beauty and fragrance arm, dealing with the company’s clothing and accessories would be much more difficult.

The eyewear, accessories and clothing brand, founded by Gucci’s former creative director in 2005, is working with Goldman Sachs on a possible sale, Bloomberg News reported last month. On Monday, Dow Jones reported that Estee Lauder is in talks to acquire the brand.

Estee Lauder already has a long-term license agreement for Tom Ford’s premium beauty and fragrance lines. The cosmetics giant recently pointed out that Tom Ford and Jo Malone, which it already owns, were each close to generating $1 billion in annual revenue. This may explain the alleged interest from Estee Lauder – the company did not comment at this stage – as it would not want to risk losing this lucrative licensing deal to a rival.

But Tom Ford’s activities are not only about beauty. It also has optical activities, which are produced and distributed by Marcolin SpA. There is no reason this arrangement could not continue under Estee Lauder’s management. The hardest part would be the Tom Ford clothing and accessories. Estee is not a natural owner of a fashion house, so she would have to find a partner with expertise in luxury clothing.

This probably won’t be one of the behemoths like LVMH Moet Hennessy Louis Vuitton or Gucci owner Kering. Why would they agree to produce the clothes and accessories without the beauty department?

A smaller luxury group such as Ermenegildo Zegna Holditalia SpA or Diesel would not make more sense. And Zegna already has commercial relations with Tom Ford. Domenico de Sole, former CEO of Gucci and current president of the Tom Ford brand, is also on the board. by Zegna.

So why isn’t Zegna buying Tom Ford herself? It would be a useful addition to her portfolio alongside her younger label Thom Browne, which she acquired four years ago. The only sticking point might be the price. Although Zegna has a strong balance sheet after it began trading in New York through a special-purpose buyout firm last year, its enterprise value is about $3 billion, about the price Estee Lauder is reportedly considering paying for Tom Ford.

Billing itself as a beauty business, Tom Ford has been trying to cash in on some of the rich multiples paid for cosmetics and skin care brands over the past five years.

Meanwhile, anyone producing Tom Ford’s sleek suits or minidresses would have a tough job. She will have to keep the brand at the top of the luxury hierarchy in order to entice more consumers to buy her expensive lipsticks and dresses. And while Tom Ford’s strength isn’t in clothing, it doesn’t have a line of bags in strong demand, which is what really drives profits in the industry.

It is unclear whether Ford himself would be part of the deal. Bloomberg News reported that a deal could include an option to work with the founder after the sale. That could leave a private equity firm keen to acquire the beauty business as a potential buyer. But conditions can be more difficult. Estee Lauder would be just as good an owner of Tom Ford, but it will have some complications to sort out. The hard part will be to prove that the beauty of this deal is more than superficial.