Haute Couture That’s Fit for the King of Bling – Bloomberg

Luxury consolidation begins at home. Rather than splashing out on Tiffany & Co., Burberry Group Plc or Michael Kors Holdings Ltd., French billionaire Bernard Arnault is taking full control of Christian Dior for about 12 billion euros ($13 billion).

Christian Dior operates as a holding company for most of the Arnault family’s 47 percent stake in luxury giant LVMH. It also owns the Christian Dior brand, stores and couture house.

In a second part to the deal, LVMH will buy those operating assets, known as Christian Dior Couture, for an enterprise value of 6.5 billion Euros.


Both LVMH and Dior Couture have been buoyed by a revival sweeping the high-end fashion industry as Chinese buyers return. That has strengthened LVMH’s finances. Gearing was just 12 percent at the end of last year, according to the company.

By offering a 15 percent premium for the residual shareholding, the Arnault family hopes to achieve a long-held aim of taking full control of Dior, without being accused of trying to get it cheap.

Arnault will rid himself of potentially troublesome minorities. And given he already owns 74 percent, holdouts would struggle to extract a higher price. Hence, Dior shares were trading just below the offer value late Tuesday morning.

The Arnaults are using the rump of their holding in Hermes International as acquisition currency for buying the Dior holding company. With Hermes shares close to record highs, it’s a good time to cash in that final chip.

Are there grounds for non-family LVMH investors to grumble about paying a high price to buy Christian Dior Couture from another part of the Arnault empire, with the company taking on more debt to do so?

Probably not. High-margin fashion and leather goods were the star performers for LVMH in a blockbuster first quarter. Bulking up in this area makes sense. Plus it cuts the company’s reliance on the less exclusive Louis Vuitton brand. LVMH shares rose too on the deal.

But there are some parties for whom Arnault’s clever rejigging is less good news. The first is Hermes. While the maker of the Birkin bag will rid itself of the Arnault overhang, this might put downward pressure on the share price.

Analysts at Exane BNP Paribas have been arguing for some time that Hermes could lose its special cachet, and become more akin to its peers. Its shares trade on a lavish 37 times expected earnings, compared to a less opulent 20 times for the Bloomberg Intelligence luxury peer group. LVMH is on 23 times.

Arnault’s readiness to sell out of Hermes may be a warning sign. Plus, with no shareholding left, any lingering hopes of LVMH having another tilt at Hermes have evaporated.

Indeed, any struggling luxury groups wishing for Arnault to rescue them should be disheartened that he’s decided to use his firepower for house-keeping instead. Even after snapping up Dior, LVMH’s gearing will be just 35 percent, according to the company. But any further dealmaking would probably be targeted on watches or jewelry brands. 

Tiffany, Burberry and Michael Kors might not like it, but for now Arnault is sticking to what he knows best.

Chris Hughes assisted on this column.

Elaine He provided graphics.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andrea Felsted in London at afelsted@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net

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