Investing.com -- Estée Lauder Cos. shares dropped 7.75% on Monday after reports emerged that the company is nearing a deal to acquire Puig Brands, a Spanish beauty firm. The stock declined sarply shortly before the market close but then recovered some losses in after-hours trading.

Both companies confirmed they are in discussions about a potential combination, though neither provided additional details. According to an earlier Financial Times report, a transaction could be announced as soon as Monday. The exact terms of the potential deal remain unknown.

If completed, the combination would create a beauty company with approximately $20 billion in annual sales.