By James Hall, Retail Editor – The Telegraph
Shares in Burberry rose by almost 4pc on Monday on the hope that the high-end British cloting and accessories company could be swept up in a wave of consolidation in the European luxury goods sector.
The rise followed news that LVMH, the French luxury goods house, will take a controlling stake in Bulgari, the 127-year-old Italian jewellery and leather goods company, in one of the biggest deals in the sector for years.
Under the terms of the deal the Bulgari family, which holds the majority stake in the world’s third biggest jeweller, will tender its 51pc share to LVMH. In return, the Bulgari family will become the second biggest family shareholder in LVMH. The French company, which is already the world’s biggest luxury goods group, will then launch a cash tender offer at the price of €12.25 (£10.50) per share for the outstanding shares held by minority stockholders in the Italian group.
The total price of the transaction will be €4.3bn, a massive 61pc premium to Bulgari’s valuation before the weekend. In Italy, shares in Bulgari rose 60pc on the LVMH news.
Toni Belloni, LVMH’s group managing director, said that the move will make the combined companies key players in the global high-end watches and jewellery market. LVMH, which also recently acquired a 20pc stake in Hermès, already owns watch brands such as Tag Heuer and Hublot.
Burberry was caught up in the excitement. Its shares rose 42p to £11.20, valuing the company at £5.2bn. Large luxury goods players have had a relatively quiet decade in terms of takeovers but a recent spate of deals has jolted the cash-rich sector into life.
Citi, the bank, said: “Mid-cap luxury stocks, such as Burberry or Tod’s, could benefit from LVMH’s move as it might signal renewed M&A activity in the sector.”
Another analyst said: “Burberry shares are up on the read-through of the Bulgari deal valuation.”
However, Citi added that following the Bulgari deal, LVMH could be “one less potential buyer [for Burberry] now” as it beds down the Bulgari deal.
The luxury goods sector is hot right now. While mid-market retailers have suffered as the economic downturn has bitten, luxury companies have thrived, mainly due to increased demand from emerging markets such as India, Brazil and China.
Earlier this year, HSBC said that it remains “more bullish than ever” on the luxury goods sector’s fundamentals. It expects global luxury demand to increase by 11pc in 2011 and 9pc in 2012.
“Asia [excluding Japan] including tourists accounted for around 40pc of industry sales in 2010 and grew by close to 20pc. High-end consumers in the US and Europe are also willing to spend, even in a subdued economic environment,” HSBC said.
However, the bank also said that after the sector’s strong performance, it was time to be more selective on which stocks to pick. On Burberry, HSBC noted its “management dream team” and said that the company was not expensive in light of its superior earnings growth prospects.
However, some luxury goods insiders said that Burberry might not be a natural fit for one of the big European fashion houses. An executive close to one of the houses described Burberry as “high-end retail” rather than luxury.
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