LVMH takes control of Italy's Bulgari
LVMH, the world's leading luxury retailer, said Monday it will take control of Italian top-end jeweller Bulgari in a deal worth nearly two billion euros that will strengthen its watches division.
The deal failed to convince investors that it will be be highly beneficial to LVMH, with the share initially sliding on the announcement, while Bulgari's shares shot up nearly 60 percent.
The accord reached with the controlling Bulgari family for the company, founded in 1884, will see LVMH issue 16.5 million shares to them for their 51 percent holding in a deal valued at 1.84 billion euros ($3.4 billion).
LVMH will also offer other Bulgari shareholders 12.25 euros a share, a 63 percent premium to Friday's closing price, with this part of the deal potentially worth another 1.79 billion euros if all the outstanding shares are acquired.
In turn, Bulgari will become the second largest family shareholder in the LVMH group, taking two seats on the board.
A Bulgari statement said that the company found in LVMH and its French multi-billionaire owner Bernard Arnault everything it felt it needed to guarantee its future.
Arnault called the deal an "ideal arrangement at every level."
In early Paris trade, LVMH shares were down 1.70 euros in a slightly weaker overall market but by midday had recovered and were trading unchanged at 11.00 euros.
In Milan, Bulgari stock soared nearly 60 percent in reaction to the news.
Bulgari shares were up 58.50 percent at 12.03 euros at around 0845 GMT while the overall Milan market was down 0.53 percent.
LVMH, which counts among its brands Givenchy, Dior and Guerlain perfumes alongside Moet and Chandon and Dom Perignon champagnes, is one of the most successful luxury retailers in the world.
Analysts said that Bulgari would help strengthen LVMH in jewelry and watches, two areas where it has been relatively weak.
"LVMH doesn't have for the moment a brand with international appeal" in jewelry, said Francois Arpels of the Bryan Garnier investment bank.
Luxury jewelry and watches usually generate higher margins, he noted.
This has been an area where LVMH has been doubly weak, noted a Milan-based analyst who asked not to be named, with no major brands and which generated low margins.
"For LVMH, the acquisition of Bulgari will help reinforce its watches and jewelry lines, which currently account for only five percent of its total revenue and produce thinner margins, around 13 percent, compared with the other activities of the French group which generate margins around 21 percent," the analyst said.
"With Bulgari, we can become a real challenger to Cartier," said a source close to the deal who called it a "rare and strategic opportunity" for LMVH.
Bulgari ranks number three in the world in jewelry behind Cartier and Tiffany.
"It is a win-win deal," said a source close to LVMH.
"The operation is completely friendly, the (Bulgari) family is joining with LVMH and it wants to work with Bernard Arnault," the source said in a reference to LVMH's smaller French rival Hermes.
LVMH recently bought a large stake in Hermes, spurring the Hermes family to erect defences to keep their control of the company. LVMH has insisted that speculation it wants to ultimately control Hermes company is without foundation.
© 2011 AFP