Ferragamo Seen as Luxury Target After Loro Piana DealAndrew Roberts and Brooke Sutherland
After LVMH Moet Hennessy Louis Vuitton SA’s deal for clothier Loro Piana SpA, Italian luxury companies from Salvatore Ferragamo SpA to Tod’s SpA may be the next targets for cash-laden conglomerates in search of growth.
After LVMH announced the $2.6 billion transaction, shares of Italian luxury retailers surged, with Ferragamo and Yoox SpA closing at records and Brunello Cucinelli SpA and Tod’s rising as much as 4.5 percent and 2.8 percent. Shoemakers Ferragamo and Tod’s are the most likely next targets, Equita Sim SpA said. Online retailer Yoox and Loro Piana-rival Cucinelli offer sales growth through 2015 of 88 percent and 45 percent, according to data compiled by Bloomberg.
As growth stalls at LVMH and Gucci-owner Kering SA, both conglomerates will be among the most active buyers, said Sanford C. Bernstein & Co. Five years into the global economic crisis that sent the Italian economy into free fall, it was the Loro Piana family who approached LVMH about buying a stake in the maker of $10,500 cashmere cardigans to help fund expansion. Other Italian companies also may turn to buyers instead of lenders to help finance growth, said Bryan, Garnier & Co.
“There’s going to be a proliferation and an acceleration of buyouts in the luxury industry,” Milton Pedraza, chief executive officer of the Luxury Institute LLC, a New York-based research and consulting firm, said in a phone interview. “They have high profit margins, but they need the capital to open stores all over the world and they need the expertise very often to globalize. The money is out there today and luxury is extremely attractive.”
Today, LVMH shares declined 0.3 percent to 133.25 euros as Kering lost 0.6 percent to 168.05 euros.
LVMH, the world’s largest luxury-goods maker, this week agreed to buy 80 percent of Loro Piana, valuing the company at 2.7 billion euros ($3.5 billion), including net debt. The acquisition, which would be LVMH’s biggest since its 2011 purchase of jeweler Bulgari SpA, helps the Paris-based company tap demand for exclusive items amid slowing sales of its more mass-market Louis Vuitton handbags. LVMH is facing its worst revenue growth since 2009.
The transaction implies an enterprise value for Quarona, Italy-based Loro Piana that’s 4.3 times its sales of 631 million euros last year, or 3.9 times estimated revenue of 700 million for this year.
Ferragamo, which sells $675 patent-leather platform heels, could be next on the shopping list for buyers including LVMH, while Tod’s, a maker of $425 moccasins, also may be an attractive target, Paola Carboni, a Milan-based analyst at Equita Sim, wrote in a July 9 note.
Ferragamo shares declined 0.3 percent to 25.18 euros today after closing at a record yesterday. Tod’s fell 0.2 percent to 117.3 euros. Based on LVMH’s bid for Loro Piana, Ferragamo could fetch 29 euros a share in a sale, while Tod’s could lure 150 euros a share, Carboni estimates.
Representatives for Tod’s, based in Sant’Elpidio a Mare, Italy, and Florence-based Ferragamo, which has a market value of 4.2 billion euros, declined to comment on speculation.
Tod’s and LVMH are already connected. LVMH owns 3.5 percent of the shoemaker through its Delphine SAS subsidiary, and Diego Della Valle, Tod’s 59-year-old chairman and founder, is on LVMH’s board. LVMH may eventually try to increase its stake, especially when Della Valle looks to retire, according to David Wu, a New York-based analyst at Telsey Advisory Group LLC.
“It would give them strong exposure to an iconic footwear and leather-goods brand that is currently performing well,” Wu said in a phone interview. Tod’s has a market value of 3.6 billion euros.
Cucinelli, a maker of $1,820 cashmere sweaters, may lure buyers with its growth opportunities in China and thriving menswear line, Wu said. Cucinelli, with a market value of 1.4 billion euros, is projected to increase revenue to 406 million euros by 2015, according to analysts’ estimates compiled by Bloomberg.
“In the end, someone can decide to hand over the reins for a variety of reasons: generational shift, stronger global growth goals, physical fatigue -- because the modern pace of work at times consumes you,” Brunello Cucinelli, founder of the Solomeo, Italy-based company that bears his name, said in an e-mail. “Selling shouldn’t be considered a defeat but rather the normal flow of life.”
In response to questions on whether he would sell all or part of his majority stake in the business, he added: “I believe in my company. I want to do only this job.”
Cucinelli shares gained 1.2 percent to 20.60 euros today.
Yoox, the 1.1-billion euro operator of e-commerce stores for brands such as Armani and Zegna, also could be a potential target, according to Chiara Rotelli of Mediobanca SpA. The retailer could be valued at 31.9 euros a share in a sale, the Milan-based analyst estimated in a July 10 report.
A representative for Yoox declined to comment. The shares advanced 0.2 percent to 19.86 euros today.
Gianni Versace SpA has said it expects to decide by October or November if it will sell a minority stake publicly or privately to fund growth.
Sergio and Pier Luigi Loro Piana, the brothers who head Loro Piana, approached LVMH CEO Bernard Arnault a month ago because they were concerned about the cashmere clothier’s prospects as a standalone company, according to a spokesman for LVMH.
It’s becoming increasingly difficult for Italian companies to secure financing amid the economic downturn, according to Francois Arpels, managing director of Bryan Garnier’s branded luxury goods practice in Paris. That’s making them more willing to explore deals with larger companies, he said in a phone interview.
Italy’s economic output in the first quarter was 8 percent lower than in the final three months of 2007 and continues to fall, Standard & Poor’s said this week as it reduced the nation’s credit rating to two levels above junk. At the same time, Italian banks cut their loans to the private sector by 3.1 percent in May from a year earlier, according to data released last month by Italy’s banking association, ABI.
“I have never seen the Italian economy in such a parlous state, ever,” Luca Solca, a London-based analyst at Exane BNP Paribas, said in an e-mail. “The cost of finance for large groups outside of Italy is very low. The cost of finance for Italian companies is high. The truth is that the big boys are buying anything that moves in Italy at this point.”
LVMH and Kering have the firepower to snap up smaller rivals. Kering had 2.1 billion euros in cash and equivalents at the end of 2012, its biggest stockpile since 2004, data compiled by Bloomberg show. Paris-based Kering, which acquired Italian jeweler Pomellato SpA in April, has said it’s interested in small- to medium-sized deals. LVMH had 2.2 billion euros in cash at the end of last year.
Representatives for LVMH and Kering declined to comment.
Acquisitions would help them shore up faltering growth and widen margins, with LVMH the most capable of exploiting synergies because of its scale, Mario Ortelli, a London-based analyst at Bernstein, said in a June 19 note.
“Our M&A strategy is opportunistic,” LVMH Chief Financial Officer Jean-Jacques Guiony said on a July 8 conference call after the Loro Piana deal. “We buy only the finest and most attractive brands if they become available.”