LVMH Bedecks Itself With Bulgari -- and May Snap Up Hermes Next

Last Updated Mar 7, 2011 3:34 PM EST

While the spotlight was on its contentious stock grab of Hermes, Moet Hennessy Louis Vuitton (LVMH) was quietly brokering another -- and friendlier -- big deal. The French luxury conglomerate is merging with Italy's house of haute jewels Bulgari. It's a move that buffs up both companies' status -- and buys LVMH that much more leverage in its bid for Hermes.

The master of bijoux shines a bit brighter

LVMH said it would issue 16.5 million shares in exchange for the 152.5 million Bulgari shares currently held by the jeweler's founding family. It's a deal worth about €3.7 billion and makes the Bulgari family the second largest family shareholder in LVMH after that of chairman and chief executive (power broker) Bernard Arnault.

Bulgari got a bottom line boost when the news broke. The Italian company was valued at about €2.3 billion on Friday, and the Financial Times reports that the LVMH offer would add an additional premium of around 60 percent.

The stock swap gives the Bulgari family two seats on LVMH's board. Additionally, Bulgari's CEO Francesco Trapani will slide into LVMH's executive suite and take over management of its watch and jewelry division.

Bring on the bling

Though LVMH's portfolio of watch and jewelry brands holds such lauded labels as Tag Heuer, Hublot and Chaumet, the French group knows that snagging the likes of Bulgari makes it that much more competitive. It's now in a better position to go against the Swiss luxury goods group Richemont (who's also been on a shopping spree recently snapping up Net a Porter) as well as PPR (domain of Arnault's arch-nemesis Francis Pinault).

And though LVMH has done very well in China and other Asian markets, Bulgari's already established a presence there, too. Bulgari's revenues were up 15 percent last year, thanks to leveraging a handsome chunk of that emerging market.

Meanwhile, back at Hermes

The news of this merger means there's probably even more nail biting happening among the leather and silk at Hermes. The ease and relative friendliness surrounding the Bulgari deal could suggest that Arnault is saying to the Hermes families, "See, this is what happens when you play nicely and let me have my way."

Arnault says that he believes that the sixth and seventh generations of the Hermes family will eventually be forced by the market to sell.

Indeed, the bigger his empire gets, the harder it may be to resist a takeover. And if that doesn't work, Arnault is famously willing to try any means to get what he wants. A stealth move allowed the stock grab at Hermes. But let's not forget that turning the family of owners against each other and then launching a hostile takeover bid is how he originally wrestled control of Vuitton and LVMH in the late 80s.

Arnault has proven he's a master corporate raider. Hermes will have to shore up some major resources in order to withstand the pressure exerted by his cool confidence and dogged determination.

Image via Wikipedia CC 2.0

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  • Lydia Dishman

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