A ‘What If’ Look at LVMH + Richemont
Among an eclectic group of fashion power brokers — from investment bankers and chief executive officers to stock traders and analysts — the luxury version of Let’s Make a Deal is a favorite pastime.
But as the game stretched on over the decades, the number of high-end brands ready to be snatched up has dwindled.
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And so speculation in recent years has turned increasingly to the delicate dance between the major consolidators with industry experts wondering if there’s some way to the altar, in some combination, for LVMH Moët Hennessy Louis Vuitton, Kering and Compagnie Financière Richemont.
LVMH is the biggest by far, and there have long been musings over a Kering-Richemont combination that could see the two try to build scale to provide a more effective counterweight.
But the latest murmur is that LVMH might want to follow up its biggest deal ever — the $15.8 billion acquisition of Tiffany & Co. in 2021 — by going much bigger with a takeover of Richemont.
Oliver Chen, an analyst at TD Cowen, followed up on “unsubstantiated news reports” that LVMH chief Bernard Arnault was interested in Richemont’s Cartier brand, and ran the numbers on just what an LVMH mega acquisition would look like.
For starters, it would have a big price tag.
Chen estimated that LVMH would pay a 30 percent premium for Richemont, or more than 109 billion euros, in a deal composed of 25 percent stock and 75 percent cash, with Arnault & Co. raising 95 percent of that cash with new debt.
That’s a takeout price of 18.4-times Richemont’s earnings before interest, taxes, depreciation and amortization — above the 17.4-times luxury average and the 14.4-times seen in the Tiffany deal.
Chen estimated the deal would be dilutive to LVMH’s finances through year two and that it would face “several obstacles,” including:
The fact that Richemont already has a de facto owner, chairman Johann Rupert, who controls 51 percent of the company’s voting rights.
That the deal would need to be approved by global anti-trust regulators.
The whopping 78 billion euros in debt that would need to be raised.
And the successful realization of synergies as the two companies are brought together.
Any one of those hurdles could be enough to trip up even the savviest of dealmakers, but mergers can be less about the problems and more about the potential, in this case just what Arnault could do with Cartier.
“LVMH has meaningful expertise in raising prices and investing in innovation that captivates younger and broader customers, while maintaining brand prestige,” Chen noted. “A recent example includes doubling the Tiffany margins as of fiscal 2022 year-end compared to when the acquisition finalized, while initiating a steady stream of powerful innovation we have seen already with Beyoncé, Nike, Jay-Z, Basquiat and the Lock Bracelet.”
While the prospects of any potential deal, or desire for a deal, between LVMH and Richemont are clouded by question marks, the opportunity the market senses is real — if tough to grab, Chen said.
The roughly $300 billion fine jewelry market “is primarily unbranded with [about] 65 percent of the industry comprising local independent jewelers, which creates a fragmented market,” he said.
Consolidating a fragmented market is very much a part of the luxury playbook. And so whatever happens — or doesn’t — now, fashion’s game of Let’s Make A Deal is going to continue.
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