Burberry is to licence its beauty business to the US group Coty in a new strategic partnership that will bring in around £180m.
Coty will pay £130m for the long-term licence to the business, plus about £50m for inventory and other assets. Burberry will then receive ongoing royalty payments from October 2017.
Burberry will take the creative lead in the new beauty business and Coty will lend its industry expertise and global distribution network to the venture.
Burberry’s beauty range includes My Burberry and Mr Burberry fragrances and its redeveloped make-up brand.
Part of the Standard & Poor’s 500, Coty is one of the largest beauty companies worldwide with approximately £7.2m in revenue and is a leader in the fragrance, salon hair colouring and colour cosmetics industries.
Christopher Bailey, chief executive of Burberry, said: "We are delighted to partner with Coty, a world leader in luxury fragrance and make-up. Working with a global partner of their scale and expertise will help drive the next phase of Burberry Beauty's development and position this business for future growth.”
News of Burberry’s partnership with Coty and the subsequent “Buy” recommendation reiterated by UBS caused shares in Burberry to rise 1.7 per cent on Monday.
Bailey added: “The combination of the upfront payments and ongoing royalties is financially attractive and is expected to provide an accretive impact to our earnings from FY 2018/19.”
In the last full year, Burberry's retail/wholesale beauty revenue was £203m, the majority of which was wholesale.
Burberry currently expects around £30m of one-off cash costs associated with the new agreement, which is subject to final regulatory approval.