Speculation surrounding potential L'Oreal acquisitions has been rife since November 2007 when the company raised over €1.5bn from the sale of its 1.8 per cent stake in pharmaceuticals giant Sanofi-Aventis.
The transaction, to be signed in the coming weeks, represents the enterprise value of YSL Beauté and will also include the Roger and Gallet subsidiary which makes perfumed soaps.
In addition, L'Oreal will have licenses for the fragrances and cosmetics of the Stella McCartney, Oscar de la Renta and Ermenegildo Zegna brands, although the former will remain the property of the PPR Group.
Although the Yves Saint Laurent and Boucheron brands will remain the property of the PPR Group, exclusive global long term licenses will be granted for their cosmetics and fragrance divisions.
PPR Chairman and CEO Francois-Henri Pinault said that L'Oreal would be able to offer a unique development platform for the brands and the agreement would allow YSL Beauté to take advantage of its "upside potential".
The brand has suffered some difficulties in the last few years with growth lagging behind other divisions in the PPR portfolio.
In early 2006 PPR presented a 'relaunching plan' - an attempt to reorganize YSL Beauté's services and industrial activities and bring it in line with the rest of the business.
PPR released its fourth quarter and full year results today, with YSL Beauté posting sales of €649.2m, an increase of 3 per cent on 2006 figures.
However this still remains one of the lowest sales growth figures within the Gucci Group, which reported an average increase of 8 per cent on last year's figures.
According to PPR, growth was fuelled by fragrance sales that increased 18 per cent due mainly to the success of the recently launched 'elle' fragrance.
L'Oreal CEO Jean-Paul Agon said the transaction would reinforce the position of the company in the luxury cosmetics market.
The move would be the biggest of L'Oreal's recent acquisitions, which include US beauty salon distributor Maly's West acquired late last year, with a turnover of $187m in 2006.
L'Oreal reported strong results for the first nine months of 2007 - $12.6bn, an increase of 7.7 per cent on last year - which lead the company to confirm its sales predictions for the financial year.
"In view of the strong growth achieved in the first nine months, we can confirm our like-for-like sales growth target bracket for 2007 of 7 to 8 per cent," said CEO Jean-Paul Agon.