Bernard Arnault describes his acquisition of Bulgari at the weekend as a “transformational deal” adding a new Italian jewel to his LVMH collection of luxury brands. Even though he does not actually say so, the chairman and chief executive of the French luxury goods group clearly thinks it is easier to do good business these days with an Italian family than a French one.
Weekend newspapers were full of interviews by leading members of the Hermès luxury group reiterating their fierce opposition of doing a deal with LVMH which has accumulated a 20.2 per cent stake in its smaller French rival.
But while they claimed the Hermès families had no intention to sell out to the “king of luxury”, Mr Arnault was busy putting the finishing touches on a friendly €3.7bn ($5.2bn) deal to take control of Bulgari, the venerable Italian jeweller.
“This is not so much an acquisition but an association between two families sharing a common vision and philosophy,” Mr Arnault told the Financial Times. The Bulgaris are selling their 50.4 per cent controlling stake in their 127-year-old company in exchange for 3 per cent of LVMH, the luxury conglomerate built up by Mr Arnault grouping together Dior, Louis Vuitton, Moët Chandon and a host of other brands.
The share deal will slightly dilute Mr Arnault’s control of his group to about 46.5 per cent, but that does not bother him. He has also agreed to buy out Bulgari’s minorities with an offer that will cost him about €2bn in cash. This too does not bother him because LVMH is riding high on the recovery in luxury, having reported a 73 per cent rise in 2010 net profits to €3bn.“I see our shares are moving a bit higher today,” he says, suggesting the market likes the strategic logic of the Bulgari deal. “For us it is a step change in the jewellery and watch business. We were relatively small in this sector but with this association we become a serious player.”
Jewellery and watches accounted for about 5 per cent of LVMH sales. The Bulgari deal is expected to double their weight as well as enabling LVMH to take on its biggest rival in the “hard luxury” sector, Switzerland’s Richemont, owners of Cartier. Richemont, and another perennial LVMH rival, PPR, are both understood to have been interested in Bulgari.
Not surprising, since Bulgari, according to Mr Arnault, is “an extraordinary brand” and the jewellery and watch business, after a difficult two years, is now the fastest growing segment of the luxury business.
Mr Arnault says he has long admired Bulgari and entertained good relations with the family for 10 years. “It is not that we simply wanted to add yet another brand to our portfolio. We already have so many great brands and we were not looking to make another acquisition just for the sake of it.”
Bulgari is the first significant acquisition Mr Arnault has made in the past 10 years, barring his move on Hermès. “There are not so many big family owned brands left and Bulgari was clearly an opportunity,” he says. Apart from Bulgari, the other two that have whetted his appetite are Chanel and Hermès.
Chanel is still privately held and not for sale. Hermès is fighting off Mr Arnault’s incursion even though LVMH insists its intentions are not aggressive. Mr Arnault is probably hoping the Bulgari deal might persuade the Hermès families (there are three branches) to reconsider.
The Bulgaris – just like the Guerlains (perfumes) or Krugs (champagne) – clearly felt comfortable joining the Arnault collection. “You know we are a group that has always preserved the culture and identity of its brands and Bulgari’s Francesco Trapani will now be in charge of our expanded jewellery and watches business,” Mr Arnault says. “It shows families can work together to develop a common approach.”
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