*

Sale includes Creed and long-term fragrance licences for

Bottega

Veneta, Balenciaga

*

Sale marks Kering CEO Luca de Meo's first major move to

cut debt

and refocus on core fashion business

*

Sale marks L'Oreal's biggest deal to date, surpassing

2023's

$2.5 billion Aesop acquisition

PARIS, Oct 19(Reuters) - Gucci owner Kering

said on Sunday it has agreed to sell its beauty business to

L'Oreal for 4 billion euros ($4.66 billion), as new

CEO Luca de Meo moves to tackle the luxury group's high debt and

refocus on its core fashion business.

Under the deal, French beauty giant L'Oreal will acquire

Kering's fragrance line Creed, as well as rights to develop

fragrance and beauty products under Kering's fashion labels

Gucci, Bottega Veneta and Balenciaga under a 50-year exclusive

license. The licence for Gucci fragrances is currently held by

Coty ( COTY ) and the new deal will commence when that expires,

believed by analysts to be in 2028.

The sale is a major step towards reducing Kering's net debt,

which stood at 9.5 billion euros at the end of June, on top of 6

billion euros in long-term lease liabilities which have sparked

investor concern.

The company has struggled to reverse declining growth at its

largest brand Gucci, which was hit hard by slowing demand in the

key Chinese market.

With the deal struck less than two months after taking

over the helm, de Meo is unwinding one of the biggest strategic

pivots made by his predecessor Francois-Henri Pinault, whose

family controls the group, in recent years.

Kering set up its beauty business in 2023 after acquiring

perfume maker Creed for 3.5 billion euros in an effort to

diversify and reduce its reliance on its Gucci brand, which

accounts for most of its profits. But the group has struggled to

ramp up the business, posting a 60 million euro operating loss

for the first half of the year.

Gucci's revenue meanwhile plummeted 25% year-on-year in the

last reported quarter, increasing the pressure on Kering to

deleverage to avoid further credit downgrades.

De Meo, who took over as CEO in September, had told

shareholders he planned to take some difficult decisions to

reduce debt at the group, including rationalising and

reorganising where necessary.

L'Oreal, the world's biggest dedicated cosmetics and beauty

player, already produces blockbuster perfumes under the Yves

Saint Laurent label after acquiring rights to the brand from

Kering for 1.15 billion euros in 2008.

The deal for Kering beauty will be L'Oreal's largest to

date, bigger than its purchase of Australian brand Aesop for

$2.5 billion in 2023.

L'Oreal, which said there were "plenty" of acquisitions

being looked at this year, has also been approached by

representatives of Armani Group, Reuters reported this month,

after the beauty conglomerate was named in the will of late

designer Giorgio Armani as one of the preferred buyers for a

minority stake in his fashion house.

($1 = 0.8576 euros)

(Reporting by Dominique Patton and Tassilo Hummel in Paris,

Anusha Shah in Bengaluru; Editing by Edmund Klamann, Diane Craft

and Lincoln Feast.)