LVMH makes Bulgari move to crack Asia

LVMH will take over Italy’s Bulgari in a €3.7bn (£3.18bn) deal to fuel more sales in emerging markets.

The offer could herald a flurry of consolidation in the luxury market, which has bounced back from the 2009 slump much faster than analysts expected.

Bulgari shares were up 58 per cent at one point after yesterday’s deal and were halted from trading for almost an hour because of excessive gains

The companies said that cost-sharing will help the luxury group close the gap with bigger watch and jewellery companies,

LVMH owns brands including Louis Vuitton handbags, Chaumet and Fred jewellery, Celine and Kenzo fashion, Hennessy cognac and Moet & Chandon champagne.
The acquisition of family-controlled assets, which does not happen often, usually means buyers have to pay a sizeable premium to the market to convince families to sell.

“Bulgari is one of the best known jewellery brands in the world, with lots of potential to grow on the back of LVMH’s global distribution reach and financial muscle,” Bernstein luxury analyst Luca Solca said.

The deal will double LVMH’s watch and jewellery business, analysts estimated. They predicted that rival luxury groups could embark on a fresh consolidation wave. Burberry shares surged after the deal was announced amid speculation that it could also be an acquisition target.

M&A HEATS UP IN LUXURY GOODS MARKET
When Royal London Asset Management recently drew up a list of possible takeover targets, Burberry was one of the top names on the list.

Its inclusion was another sign the sector was ripe for deal-making with whispers about possible offers for a number of high profile retailers doing the rounds.

With the increasing appetite for branded fashion goods in emerging markets, opportunities seem to abound. The most high profile result so far was yesterday’s swoop by LVMH, which has been seen by analysts as a move to expand its footprint in places like China and India.

Burberry, whose shares rose yesterday after the LVMH deal was announced, recently took control of its franchised stores in China for £70m in a transaction that it said could boost its earnings by almost ten per cent.

Other deals have included Richemont’s acquisition of online fashion site Net a Porter last year.

Meanwhile, analysts have pointed to high-class jeweller Tiffany as another luxury name which could be a target or buyer.

Richemont saw its shares rise 3.6 per cent yesterday as further consolidation looked likely.

A bullish note from Goldman Sachs also helped boost confidence in the sector, with the broker expecting 600m new customers to enter the market by 2025.

CREDIT SUISSE

ADVISER TO BULGARI
Credit Suisse advised Bulgari on the deal with LVMH, with sensitive negotiations bringing about a deal in which the Bulgari family were given shares and just as importantly retained key positions in the business.

Bulgari made it clear from the start that it saw the agreement as a way to expand its business rather than an opportunity for it to retreat into the shadows with the proceeds.

According to insiders, both sides set out exactly what they required from a final agreement and despite some hard bargaining the two sides were satisfied with the outcome.

The team at Credit Suisse helped Bulgari to take the plunge with a bigger company.
Bulgari shares surged yesterday after the announcement of the acquisition, as investors greeted the outcome of one of the biggest consolidation moves in the luxury retail sector for some time.

The Credit Suisse team faced the task of keeping the heartbeat of Bulgari in the business while brining in the financial clout of global giant LVMH.

The Bulgari family will get an estimated 3.5 per cent of LVMH, and it is understood that the Bulgari business will not be broken up.

Credit Suisse is accustomed to steering through large deals – in this case through its Italian office.