LVMH becomes the new luxury goods colossus following the full acquisition of Christian Dior

LVMH & DIOR

LVMH

LVMH Moët Hennessy Louis Vuitton SE – simple known as LVMH – is a French multinational conglomerate based in Paris which sells luxury goods. With revenue of €37.6 billion and a profit of €4 billion, the company is currently the biggest luxury company in the world, and it has about 120,000 employees around the world.

Founded in 1987 by the merger of the former Louis Vuitton and Moet Hennessy, the new company started to grow quickly from the beginning, continuing to increase in size during the following years thanks to the subsequent acquisition of other firms. Currently, LVMH owns 60 subsidiaries, each managing different brands’ portfolio. LVMH’s subsidiaries belong to different market’s fields: wine and spirits, specialist retailing, fashion & leather goods, perfumes & cosmetics, watches & jewellery.

Figure 1: Data from “Seekingalpha”, retrieved from Seekingalpha

Bernard Arnault not only is the CEO of LVMH, but he is also the chairman of both Christian Dior SE and LVMH, currently holding the most of Christian Dior SE. The holding Arnault, controlled by Bernard Arnault himself, controls 47,64% of LVMH’s stock and 63,66% voting rights. The CEO can be considered as a record man since he is both the founder of LVMH and the richest man in France.

CHRISTIAN DIOR

Founded 70 years ago, at present, Christian Dior runs a total of 210 locations around the world. In July 2016, the company hired Maria Grazia Chiuri – previously working in Valentino, to become the new Creative Director, being the first woman to have had this role inside the firm.

Christian Dior SE designs and retails a huge variety of luxury products, including ready-to-wear, leather goods, fashion accessories, footwear, jewelry, timepieces, but also fragrance, make-up, and skincare products while also maintaining its tradition as a creator of recognized haute-couture with the maison Christian Dior Couture.

As for the company’s whole group, nowadays Christian Dior is one of the most important luxury brands in the world and an inspiration for a lot of wealthy women. As a proof of its growing success in the market, the company has recently reported that overall sales have doubled during the last five years, reaching a total of €2 billion, with EBITA of €418 billion and an operating result of €270 billion.

TRANSACTION DETAILS

The financial transaction announced by the CEO and Chairman at the end of April involves the Arnault holding and the companies LVMH, Christian Dior SE and Hermès International for the acquisition of the Christian Dior Couture. The takeover will be formally launched in June of this year. Christian Dior selected a commission – composed by three independent administrators plus and independent analyst, Olivier Peronnet – gave support for the transaction since the beginning.

Although Bernard Arnault took control of Christian Dior perfumes and beauty and LVMH in the 1980s, he never tried to merger them under the same holding or group. The Arnault family, who already holds a controlling stake in LVMH, also owns 74.1% of Christian Dior SE, fashion house that currently owns fragrances and beauty products. On April 2017, the leader announced that the holding would buy the remaining part (2.9%) for €12.1 billion or €260 for each share, so that bringing the whole Christian Dior brand under one roof. In parallel, the Arnault holding will also launch a tender offer on the remaining 26% of Christian Dior SE’s shares. More specifically, the price of the bid in question consists of €172 for each share, for a total value of €8 billion, plus 0.192 shares of Hermès International for each share of Christian Dior. This means that we have a total value of €260 for each Dior’s share, representing a 15 per cent premium to the stock’s closing price on April 24, the day before the announcement of the acquisition.

Figure 2: Data from “Financial Times”, retrieved from Financial Times

According to the CEO and Chairman, LVMH’s fashion and leather goods division will be strengthened thanks to Christian Dior Couture, fashion house which is already controlled per 100% by Christian Dior SE for about €6.5 billion, a value representing 15.6 times the EBITDA. This deal will be certainly one of the biggest in the luxury sector.

When the deal will be finalised, LVMH Group will be thus subject to a renewal in its financial asset: in fact, the Arnault Family Group will gain the total ownership of the Christian Dior brand – in case all shareholders take part in the offer – which, in turn, will control 41% of LVMH’s stock – and nearly 56.8% the right to vote. Finally, LVMH will thus own 100% of Christian Dior Couture. Up to the present, instead, Arnauld Holding possesses only part of Christian Dior SE – 74.1% in shares and 84.9% of voting rights –, this latter directly owning the entirety of Christian Dior Couture and 41% of LVMH with 56.8% of voting rights. Moreover, the Arnault Holding Family has currently a LVMH’s stake of 5.8% and 6.3% of decisional power.

TRANSACTION RATIONALE

Following Arnault’s announcement about the financial deal which will cost €12.1 billion, many journalists and investors claimed that this transaction will be an important milestone for the group for two reasons. First, for the huge amount paid by LVMH to finalise the deal, and, second, for the importance the two brands have in the luxury and fashion industries, fields in which luxury goods are not affected by financial crisis at all.

The main purpose of the acquisition is to enhance Dior’s maison; in fact, other than the existing Christian Dior brand’s divisions such as beauty and perfumes, the couture division including clothing, accessories, jewellery and high fashion could undoubtedly contribute to the success of the whole Group. Division which also represents a strong link with Italy and therefore an added value for LVMH, since high fashion has always been an iconic symbol of the peninsula. Stephen Mitchell, head of strategy for global equities at Jupiter Asset Management, affirmed in an interview that “…reuniting Christian Dior Couture and Christian Dior Parfums – so one brand under one leadership – has to be a good thing for LVMH shareholders”. Luca Solca, managing director of luxury goods at Exane BNP Paribas, recently wrote: “The deal adds a strong brand to the LVMH portfolio at a reasonable valuation”.

The transaction was announced as a strategy to simplify both two companies’ corporate structures and as a strategic decision made to reinforce LVMH’s fashion and leather goods division. Therefore, the new Christian Dior SE, now including both fashion and fragrances, will continue to exist as a separate company in the Group, owning 41% of LVMH and having 56.8% of voting rights.  During the official speech held by Arnauld last April, the Group announced it expects the acquisition to be 2.7% accretive to its earnings per share from the first year.

Regarding the reaction of the market: the shares of LVMH closed up 3.9 per cent at €223.15, while Hermès closed down 4.5 per cent at €440.75 in Paris. At the same time Christian Dior closed up 11.1%.

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