LVMH Moet Hennessy Louis Vuitton SA (MC) and large luxury competitors will increasingly dominate the industry as scale and global reach becomes more important, said Bulgari SpA (BUL) Chief Executive Officer Francesco Trapani.
“More and more, I think the big groups will be the protagonists of the luxury business,” said Trapani, who this week announced plans to sell Bulgari to LVMH, in an interview yesterday at his Rome office.
LVMH will pay about 4.3 billion euros ($6 billion) including debt to buy the world’s third-largest jewelry brand. Bulgari, whose gems have been advertised by Julianne Moore, trailed rivals including Cartier owner Cie. Financiere Richemont SA in recovering from the financial crisis. LVMH will invest more in Bulgari in the future to ensure its growth, Trapani said.
“Life will be progressively more difficult for the independents that are also not large enough,” Trapani said, without identifying rivals that will struggle. “When you don’t have scale, you can win anyhow, but it’s becoming more difficult. You have a handicap.”
Bulgari lags behind Geneva-based Richemont and New York- based Tiffany Co. in the global jewelry market. The company is due to report 2010 earnings on March 11. Trapani said he doesn’t expect to show any “particular surprise” with the figures.
The purchase will dilute LVMH’s earnings per share by about 1 percent before so-called synergies are realized, the company said March 7. Bulgari’s sales gained 25 percent in January and February at constant rates of exchange. The Italian company’s order book more than doubled at the end of February.
While there were “a lot of people interested in doing something” with Bulgari, Trapani and his family chose LVMH because, as the world’s largest maker of luxury goods, it is powerful and diversified and because it made the right offer, the executive said.
“Their philosophy is independence on the one side and this support system to facilitate your activity and to speed the process and to do less mistakes,” he said.
LVMH agreed to purchase the Bulgari family’s 50.4 percent stake for 1.87 billion euros in stock and will make a tender offer for the remaining shares. Under the terms of the deal, Trapani and his family, who will be become LVMH’s second largest family shareholder with a 3.3 percent stake, are locked in for as long as two years.
“The minority shareholders are treated even better than us” as they can sell their shares immediately, Trapani said.
Trapani, 53, will become head of watches and jewelry at LVMH, replacing Philippe Pascal, who will remain on the company’s executive committee and be given new responsibilities in the group. Bulgari’s founding family sees LVMH Chairman and CEO Bernard Arnault as a partner, Trapani said.
“I don’t think he’s really a guy who wants to squeeze the founders out of the business,” Trapani said.
LVMH’s watch and jewelry business, which includes Tag Heuer timepieces and De Beers diamond necklaces, combined with Bulgari would have had 2010 sales of 2.05 billion euros on a so-called pro-forma basis, doubling the size of LVMH’s existing business.
LVMH “have decided to invest so much money into Bulgari because they think it’s a star brand and it gives them the possibility to change their situation in the watch and jewelry segment, where they are relatively weak,” said Trapani, who spent a day with Arnault in Rome last week before agreeing to the deal.
“They are not stupid. They don’t invest huge amounts of money into brands just to dilute these brands,” he said.
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.