LVMH to Acquire Bulgari in $5.2 Billion Deal

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Paris—LVMH announced today that it took a 50.4% stake in Bulgari for 1.86 million euros (about $2.6 billion) giving the French luxurygoods conglomerate control over the Rome-based company which has been controlled by the Bulgari family since its founding in 1884.

Under terms of the deal, which was approved by LVMH and Bulgari’s boards over the weekend, LVMH agreed to purchase the Bulgari family’s majority stake in stock, making the Bulgari family the second largest family shareholder of LVMH Group. LMVH will also submit a public purchase offer at 12.25 euros a share (about $17.18 a share) for shares held my minority stockholders. Bulgari will be delisted upon completion of the $5.2 billion deal.

In stark contrast to LMVH’s recent controversial stake in Hermès, which is being fought by that French luxury house’s majority family shareholders, Bulgari family members and LVMH praised the partnership.

“We wanted to remain as an entrepreneur in the luxury business, not go to retirement and get cash,” said Francesco Trapani, Bulgari’s ceo. “What we like about LVMH is the fact that it’s also a diversified company…They try always to have a leadership position in a different domain. And its diversification gives it more solidity and less volatility than companies that are more focused on a specific domain.”

Deal to Double LVMH’s Jewelry, Watch Business

Paolo and Nicola Bulgari will remain chairman and vice chairman, of Bulgari’s board of directors, and the Bulgari family will appoint two new representatives to the LVMH board of directors. Trapani will join the LVMH executive committee and manage the LVMH watches and jewelry division during the second half of 2011. Philippe Pascal, the current head of the division, will remain on the LVMH executive committee in a different capacity.

“The alliance between my group and the Bulgari family is a perfect combination from all points of view as we share the same culture in terms of respect for identity and roots of the brands, quest for excellence, creativity and innovation,” Arnault said in a statement today. Arnault’s Groupe Arnault holds 47.6% of LVMH.

“Bulgari is one of the best known jewelry brands in the world, with lots of potential to grow on the back of LVMH’s global distribution reach and financial muscle,” Bernstein luxury analyst Luca Solca said.

Other analysts immediately speculated that the acquisition might become a catalyst for other mergers or acquisitions in the luxurygoods arena owing to China’s greater role in the higher end market.

A Catalyst for More Luxury Acquisitions?

Nothing that China and other emerging nations could add an additional “600 million new consumers are set to enter the luxury market by 2025.”, Goldman Sachs said in a statement today: “In our view, the luxury goods market could grow at 2.2x GDP to 2025, becoming a trillion dollar industry,” Goldman Sachs said in a note on Monday.

In the jewelry and watch sectors, however,  the deal will double LVMH’s watch and jewelry business to make up 10% of its sales and about 6%  of operating profit, analysts estimated.

In addition to managing Bulgari’s jewelry and watch division, which absorbed specialty  Swiss watch manufacturers Gérald Genta and Daniel Roth Manufacture in 2010, Trapiano will also oversee LVMH’s watch and jewelry division including TAG Heuer, Zenith, Christian Dior watches, FRED and Chaumet.

Ironically, Trapani said last summer that the Bulgari family no intention of relinquishing control of Bulgari, but analysts say its financial position has been weakened by making large retail investments at a time when sales were falling.

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