LVMH to Acquire Bulgari After Agreeing to Buy Family Stake

LVMH to Acquire Bulgari
An OCTO Bi-Retro watch by Bulgari. Photographer: Simon Dawson/Bloomberg

LVMH Moet Hennessy Louis Vuitton SA plans to acquire Bulgari SpA for about 3.7 billion euros ($5.2 billion) to double the size of its watches and jewelry unit in what would be its biggest acquisition in at least a decade.

The largest luxury-goods company agreed to purchase the Bulgari family’s 50.4 percent stake for 1.87 billion euros in stock and will then make a tender offer for the rest, according to a joint statement distributed by the Italian Exchange today. The acquisition represents a 61 percent premium to Bulgari’s March 4 closing share price in Milan.

Chief Executive Officer Bernard Arnault, who last year bought a stake in Hermes International SCA without the consent of its founding family, has built up LVMH via a series of acquisitions. He’s buying the world’s third-largest jeweler as the Rome-based company’s sales growth trails larger rivals such as Cie. Financiere Richemont SA. Bulgari is adding cheaper items and high-end watches as demand rebounds after the recession.

“We see this as a great deal for Bulgari shareholders,” Alessandro Migliorini, an analyst at Helvea, wrote today in a note. “In contrast, it remains to be seen whether LVMH’s financial muscle and organizational strength will suffice to extract sufficient value to justify the acquisition price.”

Ebitda Multiples

LVMH is paying 28.2 times earnings before interest, taxes, depreciation and amortization based on the stock part of the deal and 25.8 times based on the cash part, data compiled by Bloomberg show. The company paid 15.49 times Ebitda for a 17.1 percent stake in Hermes. The median multiple paid for jewelry retailers in the past decade is 8.5 times, according to Bloomberg data.

“Our entrance into LVMH will allow Bulgari to reinforce its worldwide growth and to realize significant synergies,” Bulgari CEO Francesco Trapani said in the statement. He will join LVMH’s executive committee and replace Philippe Pascal as head of watches and jewelry, the French company said.

The purchase will dilute LVMH’s earnings per share by about 1 percent before so-called synergies are realized, the company said in a presentation today. Bulgari’s sales gained 25 percent in January and February at constant rates of exchange. The company’s order book more than doubled at the end of February.

Including stock options and the purchase of a convertible bond, the company is paying a total price of 4.3 billion euros, LVMH said on a conference call today.

$3 Billion Cash

Today’s announcement doesn’t affect LVMH’s stake in Hermes, which is a long-term investment, said Olivier Labesse, a spokesman for Paris-based LVMH. Hermes’s founding family wants LVMH to reduce its stake by more than half. LVMH has said it doesn’t plan to sell its stake and is a peaceful investor.

LVMH rose 3 euros, or 2.7 percent, to 114.15 euros at 4:28 p.m. in Paris, valuing the company at 56.1 billion euros. Bulgari shares rose 59 percent to 12.05 euros. The news drove gains in shares of other companies, including Burberry Group Plc. Burberry advanced as much as 6.7 percent in London.

LVMH’s watch and jewelry business, which includes Tag Heuer timepieces and De Beers diamond necklaces, combined with Bulgari would have had sales in 2010 of 2.05 billion euros on a so-called pro forma basis.

The agreement to acquire the family stake is binding in the event of any higher offer being made, LVMH Chief Financial Officer Jean-Jacques Guiony said on a conference call. The CFO said he doesn’t see any antitrust obstacles.

New Shares

LVMH, with about $3 billion in cash at the end of 2010, has announced at least eight acquisitions including the Hermes stake purchase in the past year, according to data compiled by Bloomberg. Paolo and Nicola Bulgari will remain chairman and vice chairman of Bulgari’s board, the company said.

“We will see what comes on the market. We will not bid too high,” Pascal said in an interview this year. “We are very picky.” Pascal will remain on the company’s executive committee and be given new responsibilities in the group, LVMH said today.

LVMH will issue 16.5 million new shares valued at 113 euros each in exchange for the Bulgari family’s 152.5 million shares. The companies are valuing Bulgari at 12.25 a share compared to the 7.59-euro March 4 closing price.

Financially, “the deal looks uninspiring for LVMH, but strategically it is an excellent move, bulking LVMH up in watches and jewelry, one of the fastest-growing areas of luxury,” Andrew Holland, an analyst at Evolution Securities in London, said in a note to clients.

Chinese Partnership

The sales increase in the last three months of 2010 trailed rival Richemont’s 33 percent gain. Bulgari said in November that Hengdeli Holdings Ltd. will distribute its watches in China under a five-year partnership. Swatch Group AG owns 9.05 percent of Hengdeli, which is listed in Hong Kong, while LVMH owns more than 6 percent, according to Bloomberg data.

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.

LVMH was advised by Credit Agricole while Bulgari was advised by Credit Suisse.


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