LVMH Acquires Cashmere Clothier Loro Piana for $2.6 BillionAndrew Roberts
LVMH Moet Hennessy Louis Vuitton SA agreed to pay 2 billion euros ($2.57 billion) for 80 percent of Italian cashmere clothier Loro Piana SpA, adding a high-quality textile producer to its burgeoning portfolio of luxury brands.
The transaction, which is subject to approval by competition authorities, values Quarona, Italy-based Loro Piana at 2.7 billion euros, LVMH said yesterday in a statement after the market closed. The family owners of the maker of $1,385 cashmere sweaters will retain a 20 percent stake in the business, Paris-based LVMH said.
“This should be viewed as a positive, opportunistic deal for LVMH,” said Thomas Chauvet, a Citigroup analyst in London, who recommends buying the shares. “Loro Piana has a potential to grow sales and Ebit significantly in the niche, fast-growing luxury daywear segment as well as creating some industrial synergies with the rest of LVMH’s fashion and leather brands.”
Loro Piana, which would be LVMH’s biggest acquisition since the 2011 purchase of Bulgari SpA, brings LVMH expertise in textiles as well as helping it tap further into the market for the most expensive luxury goods, which account for the fastest-growing part of the industry. LVMH’s Louis Vuitton brand, its biggest, has faced a slowdown as consumers from Barcelona to Beijing seek more exclusive items.
LVMH rose 1.9 percent to 131.15 euros at 10:34 a.m. in Paris today, paring this year’s decline to 5.5 percent. The company, which also makes Celine handbags and owns Sephora makeup stores, has a market value of 66.6 billion euros.
Loro Piana competes in the absolute luxury segment, which Bain & Co. predicts will grow faster than the rest of the industry until at least 2014. The company gets two-thirds of its revenue from men’s and women’s clothing and other goods, which it distributes via 130 stores worldwide, and the rest from textiles such as vicuna, a rare wool from a South American mammal, according to LVMH.
LVMH said it sees “significant growth potential” in retail expansion and widening Loro Piana’s product offer, including in leather and accessories. The Loro Piana family has been trading wool and textiles since the beginning of the 19th century and established the business bearing their name in 1924.
The transaction will boost earnings the first year after it’s concluded, LVMH Chief Financial Officer Jean-Jacques Guiony said on a call yesterday. There are put and call options for three years on the Loro Piana family’s 20 percent stake, with the price based on a multiple of trailing earnings before interest, tax, depreciation and amortization, he said. That means LVMH can force the family to sell it or they can force LVMH to buy it during the period.
Loro Piana sales are expected to reach 700 million euros this year from 631 million euros in 2012, according to LVMH. Ebitda will be more than 20 percent of sales, LVMH said. Ebit was 97.9 million euros in 2012. The Loro Piana family will keep their functions in the company’s leadership structure.
Assuming Loro Piana’s 2013 revenue goal and an Ebit margin of about 17 percent, the transaction represents an acquisition multiple of 22.7 times Ebit and 3.9 times sales, according to Citigroup’s Chauvet. That compares to a sector trading average, excluding Hermes International SCA, of 13.4 times Ebit and 2.9 times sales. Loro Piana rival Brunello Cucinelli SpA, which first sold shares to the public last year, trades at 25.2 times Ebit, according to Chauvet.
LVMH said it expects to gain antitrust clearance for the purchase in the fourth quarter. The deal will be financed by available cash and new debt made up of short-term commercial paper and a medium-term bond, according to the company. Gearing is expected to be below 20 percent next year and the purchase will have limited impact on LVMH’s debt profile and ratios, it said.
Sergio and Pier Luigi Loro Piana approached LVMH Chief Executive Officer Bernard Arnault a month ago to discuss selling a stake, according to a spokesman for LVMH.
“LVMH has proved that it respects and nurtures family businesses and is most likely to respect the values and traditions of our maison,” the brothers said in the statement.
Their father, Franco Loro Piana, started exporting fine fabrics to international markets in the mid-1940s and since the 1970s the brothers have developed the brand and expanded into luxury retail, according to LVMH.
In addition to vicuna, which Loro Piana was awarded the exclusive rights to reintroduce to the market in 1994, the company is the biggest “western” producer of cashmere and the largest single purchaser of the extra-fine merino wools in Australia and New Zealand, according to LVMH. More recently, Loro Piana has introduced the lotus flower fiber, preserving an expertise that is only held by a few local artisans established on Inle Lake in Myanmar, LVMH said.
LVMH, which in 2010 disclosed a stake in Hermes, was fined 8 million euros this month by the French financial-markets regulator for breaching disclosure rules when it built its stake in the maker of Birkin bags.
“A malignant interpretation would be that Loro Piana is some kind of ersatz Hermes,” said Luca Solca, an analyst at Exane BNP Paribas in London.