LVMH Moet Hennessy Louis Vuitton plans to acquire Bulgari for about 3.7 billion euros ($5.2 billion) to add the world’s third-largest jeweller in what would be its biggest acquisition in at least a decade.
The largest luxury-goods company agreed to purchase the Bulgari family’s 50.4 per cent stake for 1.87 billion euros in stock and will then make a tender offer for the rest, according to a joint statement distributed by the Italian Exchange today. The acquisition represents a 61 per cent premium to Bulgari’s March 4 closing share price in Milan.
Chief Executive Officer Bernard Arnault has built LVMH by snapping up brands from Donna Karan International to Glenmorangie. LVMH owns 20.2 per cent of Hermes International SCA after purchasing a stake without the knowledge of the company’s founding family. He’s buying the maker of $18,900 Sotirio Bulgari retrograde date automatic watches as the Rome-based company’s sales growth trails larger rivals including Compagnie Financiere Richemont. Bulgari is adding lower-priced items and high-end watches as demand rebounds after the recession.
“We see this as a great deal for Bulgari shareholders,” Alessandro Migliorini, an analyst at Helvea, wrote today in a note. “In contrast, it remains to be seen whether LVMH’s financial muscle and organisational strength will suffice to extract sufficient value to justify the acquisition price.”
Ebitda multiples
LVMH is paying 26.4 times earnings before interest, taxes, depreciation and amortisation for the family’s stake, data compiled by Bloomberg show. The company paid 15.49 times Ebitda for a 17.1 per cent stake in Hermes, which was acquired through equity swaps. The average multiple paid for jewellery retailers in the past decade is 8.5 times, according to Bloomberg data.
“Our entrance into LVMH will allow Bulgari to reinforce its worldwide growth and to realise significant synergies,” Bulgari CEO Francesco Trapani said in the statement. He will join LVMH’s executive committee and replace Philippe Pascal as head of watches and jewellery, the French company said.
The move caps a busy week for Arnault, who fired John Galliano from Christian Dior after three people alleged the designer made anti-semitic and racist comments to them. Arnault controls Dior.
Today’s announcement doesn’t affect LVMH’s stake in Hermes, which is a long-term investment, said Olivier Labesse, a spokesman for Paris-based LVMH. Hermes’s founding family wants LVMH to reduce its stake by more than half. LVMH has said it doesn’t plan to sell its stake and is a peaceful investor.
$3 billion cash
LVMH rose 30 cents to 111.85 euros at 11.12 am in Paris, valuing the company at 54.8 billion euros. Bulgari shares rose 58 per cent to 12 euros. The news drove gains in shares of other companies, including Burberry Group. Burberry advanced as much as 6.7 per cent in London.
LVMH, with about $3 billion in cash at the end of 2010, has announced at least eight acquisitions including the Hermes stake purchase in the past year, according to data compiled by Bloomberg. Paolo and Nicola Bulgari will remain chairman and vice chairman of Bulgari’s board, the company said.
“We will see what comes on the market. We will not bid too high,” Pascal said in an interview this year. “We are very picky.” Pascal will remain on the company’s executive committee and be given new responsibilities in the group, LVMH said today.
New shares
LVMH will issue 16.5 million new shares valued at 113 euros each in exchange for the Bulgari family’s 152.5 million shares.
Financially, “the deal looks uninspiring for LVMH, but strategically it is an excellent move, bulking LVMH up in watches and jewellery, one of the fastest-growing areas of luxury,” Andrew Holland, an analyst at Evolution Securities in London, said in a note to clients.
Bulgari sales for the three months ended December 31 climbed 21 per cent to 357.8 million euros, the company said in January. Full-year revenue climbed 15 per cent to 1.07 billion euros. Excluding currency swings, annual sales rose 8.3 per cent, beating the company’s forecast for “mid-single-digit” growth.
The sales increase in the last three months of 2010 trailed rival Richemont’s 33 per cent gain. Bulgari said in November that Hengdeli Holdings will distribute its watches in China under a five-year partnership. Swatch Group owns 9.05 per cent of Hengdeli, which is listed in Hong Kong, while LVMH owns more than 6 per cent, according to Bloomberg data.
Bulgari was founded in 1884 by Sotirio Bulgari. Trapani, who has run the company since 1984, is a family member. The company has been listed on the Milan stock exchange since 1995.
LVMH was advised by Credit Agricole while Bulgari was advised by Credit Suisse.
