Barcelona-based Puig, the owner of the Carolina Herrera and Jean Paul Gaultier brands, could pay about 1 billion reais ($306 million) for a stake of up to 30 percent in Granado, said the first two sources, who asked for anonymity because talks remain private.

Former banker Christopher Freeman, who bought Granado from the company's namesake founding family in 1994, wants a partner to help the Rio de Janeiro-based company bolster an overseas push that began three years ago with the opening of a small shop in Paris, a third source told Reuters.

Both parties are working to announce a deal within days, all the sources said. They said Puig has consistently stood out over a number of private-equity firms and strategic rivals that showed preliminary interest in Granado. Freeman began to look out for a minority partner at the beginning of the year, the sources said.

Media representatives for Puig did not respond to a an emailed request for comment. Granado's investor relations division declined to comment.

The Granado stake could help Puig grow in Brazil, a country of 200 million that ranks as the world's No. 3 cosmetics and beauty care market. A third-generation family-owned business, Puig manages licenses such as Prada and Valentino and markets celebrity fragrances in over 150 countries.

Founded in 1870 by Portuguese pharmacist José Antônio Coxito Granado, Granado has managed to dribble the impact of Brazil's harshest recession in eight decades by targeting sales of the company's glycerin soaps, shave balms, creams, nail polish and body powders to an affluent clientele.

FATHER AND DAUGHTER

Granado, which had revenue of 380 million reais last year, has achieved compounded average growth of 20 percent over the past decade, according to the third source.

Freeman and Granado hired the investment-banking units of Itaú Unibanco Holding SA (>> Itau Unibanco Holding SA) and Grupo BTG Pactual SA (>> Grupo BTG Pactual) to advise them on the transaction, the sources said. The banks did not comment.

A former Citigroup Inc investment banker, Freeman and his daughter Sissi Freeman have spent the past decade honing the company's business focus and retro image, represented by vintage logo designs and old-styled store decoration mimicking early 20th century pharmacies.

Granado's three divisions run a web of 47 stores across Brazil, a distribution network and a plant where the company's flagship products are manufactured. Granado's most recognised products include Phebo, Brazil's first luxury perfumery and glycerin soap brand, which Freeman bought in 2004.

On its part, Puig's presence in emerging markets has grown, helping the company decouple from years of weak growth in Spain. Currently, 47 percent of revenues come from emerging market countries outside of the European Union and North America.

Last year, Puig had net income of 126 million euros ($140 million) on revenue of 1.645 billion euros. Puig expects annual revenue to reach 2 billion euros by the end of next year.

(Editing by Stephen Coates and Grant McCool)

By Guillermo Parra-Bernal and Tatiana Bautzer

Stocks treated in this article : Itau Unibanco Holding SA, Grupo BTG Pactual