Whereas the acquisition by LVMH of a 20% stake in Hermès set alarm bells ringing in French luxury, the buyout, by the same LVMH, of Bulgari is just business as usual, with analysts praising the deal as an excellent strategic operation. And an expensive one? Not so sure. The two-stage transaction, first a share swap to secure the Bulgari family’s 51% stake, then a purchase offer to minority shareholders for a total €3.7 billion (USD5.2 billion) or €4.3 billion (USD5.9 billion) including debt, isn’t that excessive.
LVMH will finance the first part of the deal with a share issue that will make the Bulgari family the second-biggest family shareholder in LVMH, with some 3.5%. The second stage, worth €1.8 billion (USD2.5 billion), will be a mere formality for the conglomerate, which had more than €3 billion (USD4.2 billion) in liquid assets at end 2010 and makes an equivalent amount in cash each year. Says Alessandro Migliorini, an analyst with Helvea in Geneva, “it remains to be seen whether LVMH’s financial muscle and organizational strength will suffice to extract sufficient value to justify the acquisition price.”
"A brand with international appeal"
Analysts agree on one point: the tie-up between Bulgari and LVMH makes perfect sense, particularly as the Italian firms’ directors will stay in command. “This friendly takeover will strengthen LVMH in what is currently its weakest segment,” notes François Arpels of the Bryan Garnier investment bank. “Its Watches and Jewellery business lacks critical mass and represents just 5% of the group’s total revenues. Apart from Fred, Chaumet and De Beers in jewellery, and Tag Heuer, Zenith and Hublot in watches, this area was lacking the support of major brands. LVMH now has its hands on a brand with a powerful image and international appeal. Also, jewellery and watches generate some of the highest margins in luxury.”
The deal helps Bulgari resolve the question of succession. As Francesco Trapani, great-grandson of the founder and CEO for more than 20 years, observes, “my uncles are coming up to retirement and the next generation isn’t interested in managing the firm. However, the family didn’t want to simply sell. LVMH is offering a partnership, and in a growing market, Bulgari needed an ambitious partner.”
An opportunity not to be missed
A partner that’s been lurking in the background for some considerable time, suggests Bernard Arnault, Chief Executive of LVMH in Le Figaro: “We’ve been following Bulgari for maybe ten years now. It’s one of the biggest global brands and one of the last of its stature to still be independent. This was an opportunity we couldn’t miss. The acquisition doubles LVMH’s size in watches and jewellery to become a world leader in these segments, as it already is in leathergoods and champagne. LVMH will accelerate Bulgari’s development while respecting its creativity, Roman spirit and culture, as we do with all our brands. Bulgari will benefit from our strike force in purchasing and distribution.”
LVMH has clearly done its sums. Last year, its Watches & Jewellery division generated sales worth €985 million (USD1.4 billion), up 29%. For the same year, Bulgari totalled revenues of €1.069 billion (USD1.515 billion), putting the company back on track after posting losses in 2009. Together, their two activities will account for almost 9% of LVMH’s sales this year versus less than 5% previously. LVMH is, without doubt, now a force to be reckoned with in the sector.