As Luxist blog remarked on Monday: “We’ve been so busy watching the drama as luxury mega-conglomerate LVMH Moët Hennessy Louis Vuitton makes moves on French luxury brand Hermès that we didn’t even see them sneaking up on Bulgari”.
The FT, however, scooped the story, reporting on Sunday night (updated on Monday):
LVMH, the French luxury goods conglomerate, is to take a controlling stake in Bulgari, the Italian jewellery house, in an all-share deal.
The agreement, announced on Monday, will see the Bulgari family tender its 51 per cent share in a share swap that will make them the second largest family shareholder in LVMH, the world’s largest luxury goods group.
The deal strengthens LVMH’s competitiveness with Richemont, the Swiss luxury goods conglomerate, which boasts the Cartier brands and has traditionally been stronger in watches and jewellery.
A person close to the deal said that the Bulgari family, which includes brothers Paolo and Nicola, were united in their decision to agree to a share swap with Bernard Arnault, chairman and chief executive of LVMH.
Not only that. Bulgari was valued at about €2.3bn ($3.2bn) at Friday’s close, and the LVMH offer would put a premium of around 60 per cent on that figure, the FT adds. A tender offer for the remaining listed shares at a price of €12.25 per share will be launched on Monday.
The agreement will also see the Bulgari family getting two seats on the board of LVMH. Francesco Trapani, Bulgari’s chief executive and nephew of Paolo and Nicola Bulgari, will also join the executive committee of the LVMH group and become head of LVMH’s watches and jewellery business which will double in size as a result of the deal.
A very civilised deal — or, indeed, a match made in luxury heaven, and one that reminds us yet again of LVMH’s relentless transformation into what Luxist calls “an unstoppable luxury juggernaut”, grouping over 60 of the world’s most prestigious brands.
For LVMH’s fine stable, the 127-year-old Bulgari name not only represents one of the top brands in jewelry and watches but in recent years has also extended its cache to encompass other goods as well as luxury hotels.
How nice, then, for LVMH’s acquisitive Arnault to be welcomed with open arms, after months of being portrayed by French luxury rival Hermès as – quelle horreur – a greedy marauder. It was only on Friday that Hermes took its latest potshot at Arnault and his attempt to build a controlling stake in the company, saying:
“We are a united family, which includes those who don’t work for the company,” said Patrick Thomas, the group’s chief executive. “The Hermès family does not view LVMH as a desirable shareholder.”
The remarks came as Hermès smugly reported a year-on-year increase in net income of 46 per cent and raised its dividend.
As DealBook notes:
The peaceful negotiations between LVMH and the Bulgari family stands in stark contrast to LVMH’s battle with another hallowed name in French luxury, Hermès, whose controlling family has largely united in an effort to fend off its acquisitive rival.
LVMH amassed a 17 percent stake in Hermès, the maker of coveted maker of Kelly and Birkin bags and iconic colorful scarves, through equity swap derivatives. High-level LVMH executives, led by Mr Arnault, say that they are not seeking to unnecessarily antagonize Hermès’ management. But they also suggest that they will be patient in eventually seeking control.
Shaken by the quietness of LVMH’s approach and a belief that the larger company would devalue the Hermès brand, various members of the controlling Dumas family have sought ways to maintain their grip.
The transaction, as the Wall Street Journal notes, comes as the luxury-goods market rebounds sharply from a “deep trough” during the recession. Bulgari itself reported a 21 per cent jump in quarterly revenue in January, helped by strong sales in Japan, pushing its annual sales well over €1b, and ahead of a planned push into China this year.
The Journal also remarks on the stark contrast between LVMH’s smooth Bulgari deal and the spikey standoff with Hermès, noting that Arnault recently described the Hermès investment as “peaceful but not passive”.
If that imbroglio is “peaceful”, we’d like to see what Arnault sees as “hostile’ – or maybe we wouldn’t. And, as the FT asked in a colourful analysis of the LVMH/Hermès stand-off in January, why, then, is Hermès so worried?
The answer, as it notes, is that the LVMH chairman has become a master at exploiting family divisions to build his luxury empire – picking off Moët Hennessy, Louis Vuitton and Château d’Yquem. He is now presumably betting that the Hermès family unity will eventually crack and is prepared to play a long waiting game.
In the meantime, the cosy little Bulgari deal should keep him happy and give him some watches and shiny jewelry to play with – at least for now.
Related links:
In-depth report: Business of luxury – FT.com
Arnault seeks ‘positive’ Hermès role – FT
Creative destruction – FT
LVMH/Hermès – FT