Estee Lauder Cos. agreed to buy Tom Ford at a valuation of $2.8 billion in its largest-ever deal that also solidifies an existing licensing agreement for the designer’s fragrances and makeup.

With the acquisition, Estee Lauder is ensuring that it holds on to the valuable partnership the company has had with Tom Ford’s fragrance and beauty lines for nearly two decades.

Estee Lauder will pay around $2.3 billion for the brand, funded by cash, debt and $300 million in deferred payments, while $250 million will come from Marcolin SpA, whose existing license with Tom Ford will be extended, according to a statement Tuesday.

Tom Ford will extend its long-term license for men’s and women’s fashion as well as accessories and underwear to existing partner Ermenegildo Zegna NV for 20 years. The deal also comes with a 10-year automatic renewal if minimum performance conditions are reached.

Zegna will acquire the fashion operations necessary to perform its obligations as licensee with its cash on hand.

CREATIVE VISIONARY

Ford, the namesake founder of the brand, will serve as “creative visionary” after closing and through end of 2023 while chairman Domenico De Sole will stay as a consultant until the same time, according to the statement.

Estee Lauder executives have said that the existing licensing agreement with Tom Ford generates nearly $1 billion in revenue for the company each year and that the existing deal expires in 2030. At that point, the agreement would have to be renegotiated — a risk Estee Lauder avoids with this deal.

The announcement follows a report by Bloomberg News in July that Tom Ford was exploring a potential sale. Gucci owner Kering SA, which had long flagged it was keen to do a transformational deal, also held talks to acquire Tom Ford, people familiar with the matter said. A Kering representative declined to comment.

Estee Lauder said it expects the transaction to be dilutive to adjusted diluted earnings per share in its current fiscal year by 5 cents to 15 cents, mainly because of one-time, acquisition-related costs. For its fiscal 2024, it expects the transaction to be roughly neutral to adjusted diluted earnings per share.

The acquisition is expected to close in the first half of 2023.

Perella Weinberg Partners advised Estee Lauder; Goldman Sachs Group Inc. advised Tom Ford while Zegna received advice from UBS Group AG.