Six weeks after LVMH Moet Hennessy Louis Vuitton said it wouldn’t overpay for acquisitions, the world’s largest maker of luxury goods is now spending more than ever to purchase Bulgari.
LVMH, which sells everything from Louis Vuitton bags to Dom Perignon champagne and Royal Van Lent yachts, agreed yesterday to pay ¤3.7 billion ($5.2 billion) for the Rome-based watch and jewelry maker in its biggest takeover in at least a decade, according to data compiled by Bloomberg. Including net debt, the deal values Bulgari at as much as 28.2 times earnings before interest, taxes, depreciation and amortisation, higher than LVMH has offered for any other company and 82 per cent more than it paid for a stake in Hermes International in October.
Chief Executive Officer Bernard Arnault, who built Paris-based LVMH through acquisitions over more than two decades, is paying the biggest premium in 10 years to gain control of the world’s third-largest jeweller from Bulgari’s founding family. While Bulgari’s earnings slumped 67 per cent in the past three years and the company has a lower operating margin than any of its largest rivals, Arnault is betting he can boost profitability as Bulgari’s sales reach a record this year.
“It’s priced on the assumption that they’ll do well with it,” said James Moffett, who helps oversee $20 billion in Kansas City, Missouri, at Scout Investments, which owns about 675,000 shares of LVMH. “They’re obviously paying a fairly full price for it. There’s always a risk that it doesn’t work.”
Still, “they’re skilled operators and they’re used to dealing in the luxury-goods business,” Moffett said. “There are a lot of ways that they could mess it up, but the odds are that they won’t.”
LVMH, founded in 1987 from the merger of Moet Hennessy and Louis Vuitton, has completed more than two dozen acquisitions in the past decade as Arnault forged a luxury goods maker now valued at $77 billion. Sales have almost doubled in that span to ¤20.3 billion.
Bulgari would be Arnault’s biggest takeover attempt since shareholders rejected his $6.15 billion bid for Gucci Group in 1999, the data show.
LVMH will buy the 50.4 per cent stake owned by Bulgari’s founding family using stock and then make a tender offer for the rest in cash, the companies said yesterday. The deal values the family’s stake at ¤1.91 billion, while LVMH’s ¤12.25 per share offer to minority investors will cost almost ¤1.84 billion.
Including options and the purchase of a convertible bond, the company is paying a total price of ¤4.3 billion, LVMH said on a conference call yesterday.
The stock portion of the acquisition gives Bulgari an enterprise value, or its equity and debt minus cash, of ¤4.04 billion, or 28.2 times its Ebitda of ¤143.3 million in the past 12 months, data compiled by Bloomberg show. The tender offer was struck at 25.8 times Bulgari’s Ebitda.
LVMH’s deal for the controlling stake held by Bulgari’s founding family would be more than twice as expensive as the median Ebitda multiple of 11.9 times the company has historically paid in acquisitions.
