LVMH Acquires Cashmere Clothier Loro Piana for $2.6 Billion

LVMH Acquires Cashmere Clothier Loro Piana for $2.6 Billion

LVMH Moet Hennessy Louis Vuitton SA (MC) agreed to pay 2 billion euros ($2.57 billion) for 80 percent of Italian cashmere clothier Loro Piana SpA, adding a high-quality textile producer to its burgeoning portfolio of luxury brands.

The transaction, which is subject to approval by competition authorities, values Quarona, Italy-based Loro Piana at 2.7 billion euros, LVMH said yesterday in a statement after the market closed. The family owners of the maker of $1,385 cashmere sweaters will retain a 20 percent stake in the business, Paris-based LVMH said.

“Loro Piana is quintessentially high-end while a lot of LVMH is mass luxury,” said Luca Solca, an analyst at Exane BNP Paribas in London, adding that he expects the market to favor the deal. With the purchase, “LVMH can acquire a trophy asset” and get growth opportunities for the future without stretching its balance sheet.Loro Piana brings LVMH expertise in textiles from sourcing to manufacturing as well as helping it tap further into the market for the most expensive luxury goods, which account for the fastest-growing part of the industry. The sector will continue to consolidate as financial investors seek to tap rising demand in fast-growing economies and large luxury groups look to benefit from scale, says Sanford C. Bernstein analyst Mario Ortelli. The purchase would be LVMH’s biggest since the 2011 acquisition of Italian jeweler Bulgari SpA.

“I am convinced that our group will prove a good home in realizing the significant future potential of Loro Piana,” LVMH Chief Executive Officer Bernard Arnault said in the statement. The clothier has “exceptional synergies” with LVMH, the French company said in a presentation on its website.

LVMH rose 3 percent to 128.75 euros at the close in Paris yesterday. It has declined 7.2 percent so far this year.

Vuitton Slowdown

The purchase may help LVMH limit the impact of the slowdown at Louis Vuitton, its biggest brand. The maker of monogrammed totes is raising prices, using more leather as well as fewer logos in its product mix and limiting store expansion to regain its luster as sales growth slows from Barcelona to Beijing. The world’s largest luxury-goods maker in April posted its weakest fashion and leather goods sales growth since 2009.

Loro Piana competes in the absolute luxury segment, which Bain & Co. predicts will grow faster than the rest of the industry until at least 2014. The company gets two-thirds of its revenue from men’s and women’s clothing and other goods, which it distributes via 130 stores worldwide, and the rest from textiles such as Vicuna, according to LVMH.

Growth Opportunity

LVMH said it sees “significant growth potential” in retail expansion and widening Loro Piana’s product offer, including into leather and accessories. The Loro Piana family has been trading wool and textiles since the beginning of the 19th century and established the business bearing their name in 1924.

Loro Piana sales are expected to reach 700 million euros this year from 631 million euros in 2012, according to LVMH. Earnings before interest, tax, depreciation and amortization will be more than 20 percent of sales, LVMH said. Ebit was 97.9 million euros in 2012. The Loro Piana family will keep their functions in the company’s leadership structure.

Italian rival Brunello Cucinelli SpA (BC) said in February it was comfortable with consensus estimates of about 13 percent revenue growth in 2013 amid strong demand from the wealthiest shoppers. That compares with overall worldwide luxury growth of as much as 5 percent this year, excluding currency shifts, as booming demand in Southeast Asia offsets a slowdown in China and Europe, Bain predicts.

Transaction Completion

Middle-of-the-road brands are suffering as luxury consumption polarizes between the most exclusive labels and their premium rivals, according to researcher Millward Brown Optimor.

LVMH said it expects to gain antitrust clearance for the purchase in the fourth quarter. The deal will be financed by available cash and new debt made up of short-term commercial paper and a medium-term bond, according to the company. Gearing is expected to be below 20 percent next year and the purchase will have limited impact on LVMH’s debt profile and ratios, it said.

Sergio and Pier Luigi Loro Piana approached Arnault a month ago to discuss selling a stake, according to a spokesman for LVMH.

“LVMH has proved that it respects and nurtures family businesses and is most likely to respect the values and traditions of our maison,” the brothers said in the statement.

LVMH, which in 2010 disclosed a stake in Hermes International (RMS) SCA, was fined 8 million euros this month by the French financial-markets regulator over how it built its stake in the maker of Birkin bags.

“A malignant interpretation would be that Loro Piana is some kind of ersatz Hermes,” Solca said.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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