CASE ANALYSIS

Some of the biggest and the largest luxury brands have been family
owned, though the trend is changing now. With a Multi national
conglomerate like LVMH, buying out most of these family owned firms.
When a luxury house releases their full year financial reports, rumors
usually follow. There will be speculation on possible movement within
the business, be it to do with staffing, a possible acquisition etc.
The latest rumor making the rounds is that French luxury group LVMH
might acquire Burberry or Tiffany & Co. to bolster its slowing revenue
growth. One of which is family owned.
LVMH may go after Burberry the U.K.s biggest luxury-goods producer,
as a way to increase revenue while it works on repositioning the Louis
Vuitton brand. After LVMH purchased Italian jewellery maker Bulgari in
2011, it also could pursue Tiffany & Co., the New York-based jeweller
with a market capitalisation of $US 8.1 billion.
LVMH, Burberry and Tiffany & Co. have declined to comment on the
rumors, which makes us wonder if it is a smoke storm or if we will see
another coup from the luxury group.
LVMH CEO Bernard Arnault, who helped to build LVMH into the worlds
largest luxury-goods maker through acquisitions.
Why would LVMH acquire such a big brand such as Burberry or Tiffany &
Co.?
It would allow LVMH to reduce its reliance on the smaller labels in the
groups portfolio, while buying time with Louis Vuitton and developing
its other fashion lines.
The French luxury groups sales are projected to increase 7.3 per cent
this year, the worst annual rate since 2009, as the Paris-based company
slows expansion of its flagship brand to enhance Louis Vuittons image
and exclusivity.
When a rumor of this significance gets out in the market place, it can
create a tsunami effect on stock exchanges around the world, but stock
markets and industry observers have shrugged off the reports.
As public companies are required to reveal all with their scheduled
fiscal announcements including their history, current and future plans
and it enables speculation from the analysts as to what a company may
or should do given their current status. Such is the case with the latest
rumor for the LVMH Group, that strong additional growth may only
come via acquisition for them. Both brands mentioned, Burberry and
Tiffany & Co. are not exactly easy or inexpensive purchase options. So
quite literally time well tell here.
Bernard Arnault describes his acquisition of Bulgari as a
transformational deal adding a new Italian jewel to his LVMH
collection of luxury brands.
LVMH has agreed the acquisition of a controlling stake in Italian luxury
retailer Bulgari in a share deal, which values the company at Euro 3.7
billion. The move will help Bulgari to achieve growth, while also doubling
the size of LVMHs watches and jewelry division. In the highly
competitive luxury market, LVMHs rivals such as PPR are expected to
retaliate with their own acquisitions.
The worlds largest luxury goods retailer, Moet Hennessy Louis Vuitton
(LVMH), has entered into a share deal with Italian retailer Bulgari to
purchase a majority share of the company less than a year after Bulgari
stated it was not for sale. LVMH will issue 16.5 million shares, worth
Euro 1.87billion, to the Bulgari family to buy their 152.5 million shares,
which equate to a 50.43% majority share of Bulgari. LVMH will then seek
to acquire the outstanding shares at a price of E12.25 per share.
The agreement means that the Bulgari family will become the second
largest shareholder in LVMH, behind founder Bernard Arnault.
The acquisition is a significant victory for LVMH, especially as rivals
Kering and Richmond had previously shown interest in acquiring stakes
in Bulgari.
There are obvious benefits for Bulgari too; not only will it be able to
utilize LVMHs resources to expand further in crucial growth markets
such as Asia Pacific, but it can also leverage the French retailers
experience in key product divisions such as accessories and perfumes,
helping it to become less dependent on watches and jewelry. Bulgari
reported an operating loss of E20.0m in 2009, partially due to the impact
of the economic downturn, but has since bounced back in 2010 and this
acquisition will help the company to ensure that it can build on this
recent success.
The acquisition of Bulgari follows LVMHs growth of its stake in luxury
fashion house Hermes to 20.2%, and confirms LVMHs position as the
leader of the luxury market, ahead of Kering . The recent move will no
doubt give some momentum to Kerings acquisition efforts, leading to
further consolidation in the ever-growing luxury segment.
Being categorized as a successful merger is not a simple thing to predict.
Having a good communication, transparent relationship, and inter-
changing information are important factors within this merger. 127
years business experience of Bulgari combines with global-network and
strong financial aspect of LVMH could develop competitive advantage
from both parties. Creating a synergy is the key answer of maximizing
shareholders' wealth of this merger. This deal seems to be beneficial for
both parties' shareholders at the moment. In conclusion, this deal could
be good strategically and operationally for long-term purpose. However,
the future successfulness is still uncertain since it is still too early to be
concluded.

On the other hand, this deal might bring great influence within luxury-
brands' regulation in my view. This merger obviously makes LVMH's
presence in this industry much stronger. Intense competition apparently
carries a lot of concerns from suppliers and governments. Fear of
increasing levels of M&A activities in the future would spread the
bargaining power over suppliers. Monopoly within the industry might be
the biggest issue with the growing levels of M&A activities. Having only
few big competitors could diminish buyers' choice and set price
arbitrarily.

The LVMHBulgari deal does not imply that all family luxury companies
Should sell to a consolidated luxury group. Herms has refused all offers,
both peaceful and hostile, from LVMH. Only by understanding the multi-
faceted rationale for the LVMHBulgari deal does it become possible to
draw conclusions for other luxury companies.