Acquisition Rumors Erupt in Luxurygoods Sector

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Paris—European stock and retail analysts have been aflutter this week with speculation about LVMH possibly increasing its stake in Hermès and that PPR Group, parent to Gucci and Puma, may soon acquire another big name company under its umbrella, too.

As Hermés stock hit a new seven-month high this week–the highest level since it spiked above 200 euros a share when billionaire and LVMH chairman Bernard Arnault shocked the luxurygoods sector by snapping up 20% of its stock last fall.

LVMH Quietly Buying More Shares?

While the 174-year old family-owned Hermés has repeatedly demanded that LVMH sell half its stake and is trying to create a poison pill to avoid a takeover, LVMH continues to decline comment even as French investors and bankers speculate that the luxurygoods giant is again buying shares of Hermés.

In fact, Hermés is trading at 35 times 2012 earnings, “the top in the European sector and besting even the multiple of Italy’s Bulgari which LVMH agreed to buy in March at a 60% premium. In fact, Hermés’ shares  has pushed its market capitalization to 20 billion euros (about $29.22 billion), making it more valuable than French tire maker Michelin and EADS, which owns Airbus, the world’s biggest commercial aircraft maker.

Some think that LVMH is buying up more shares, or working through intermediaries, to increase its foothold in Hermés.

“It could very well be that he’s trying to buy out the other 7% that’s in the float,” said a Paris-based banker told Reuters. “He’s sort of the only buyer. If ever someone sells, they will sell to him. It’s as simple as that.”

“The Hermés family is doing all it can to avoid falling into the hands of another group, which means a white knight such as a hedge fund could be welcomed,” said Marc Gilson, head of Paris-based fund manager Fival. “That sort of speculation is fuelling the stock’s rally, which makes a potential squeeze out of the remaining shares, or even an offer to some or all members of the family, more and more expensive.”

Under French bourse regulations, LVMH wouldn’t have to reveal an increase in its stake until it acquired a 25% threshold.

Meanwhile, according to La Tribune, PPR is in talks to acquire a major acquisition in the luxurygoods sector. Among the possible targets: Burberry, Hugo Boss, Ralph Lauren and even Prada, which has just announced the price range for its Hong Kong initial public offering.

While a spokesperson for PPR denied any major impending acquisition, it’s done nothing to quash speculation. “Traders reckon PPR is more likely to target an acquisition at the hard end of the luxury goods market such as watches, jewelry, rather than the soft end (apparel, leathergoods, etc.).

While PPR —which recently acquired surfwear brand Volcom—make garner up to 5 billion euros from selling off its Redcats catalog business, FNAC and its remaining stake in CFAO, an African distribution business, François-Henri Pinault, chairman, has indicated that any purchase would be smaller in scale.

“If you buy something that is already big, it is very difficult to offset the acquisition premium, Pinault has said. “When we bought Bottega Veneta in 2001, it had 30 million to 35 million Euros of turnover. Last year turnover was 511 million euros. This is where you create a lot of value–if we had bought a 500 million euro brand, it would have been much more difficult.”

Richemont Sets Sights on Tiffany & Co.?

Meanwhile, The Evening Standard in London added to the speculation today, reporting a rumor that Richemont, owner of Cartier, Van Cleef & Arpels and Mont Blanc, may offer $130 a share to acquire Tiffany & Co. Initially, PPR was supposed to be interested, too but the French luxurygoods company immediately denied any interest.

According to data from Thomas Reuters, luxury mergers and acquisitions have doubled the pace set in 2010, rising to nearly $6 billion as of May 20 compared to 2.9 billion for full year 2010.

“The buyer just says I can do even more with that. I can take a 10-year growth plan and make it happen in five, I can enter two times as many countries, I can build five new stores instead of two,” Shawn Kravetz, president of Esplande Capital, said.

“A lot of these larger companies are going to be under even greater pressure to find ways to grow. And when they’ve penetrated even more of these international hamlets, acquisitions are going to be the way to grow,” Kravetz added.

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