The Bulgari Effect, LVMH Make Waves in the Luxury Industry

Melinda O’Rourke of MO Luxury discusses the knock-on effects of the recent LVMH acquisition of Bulgari, for other brands, shareholdings and the industry at large.

The recent union between Bulgari and LVMH has seen considerable effects take place amongst both partners, but a butterfly affect is also working its way through the luxury market, with the union causing change for some of the world’s other leading luxury brands.

The first luxury brand to quickly show welcomed results from the merger was Burberry, who according to the UK Telegraph saw their shares rise by ‘almost 4pc on Monday on the hope that the high end British clothing and accessories company could be swept up in a wave of consolidation in the European luxury goods sector.’ It has been hinted towards that Burberry could be the next luxury company to be chosen to unite with a European luxury fashion house. As HSBC have forewarned, the luxury market is in high demand of late and is set to rise further, will Burberry remain solo?

With the total price of the LVMH and Bulgari transaction reaching 3.7 billion euros, luxury markets around the world are feeling the relapse, particularly in Italy where Bulgari shares rose 60pc after the news broke out. Despite LVMH paying the largest premium in 10 years to join with Bulgari, CEO Bernard Arnault is confident that the brand can boost profitability, regardless of Bulgari’s earnings slumping 67% over the past three years. LVMH have dealt with over two dozen acquisitions over their time, but Bulgari is without doubt their biggest. Bulgari will be entitled to an enterprise value, according to Bloomberg, of ‘4.04 billion euros, or 28.2 times its Ebitda of 143.3 million euros in the past 12 months.’

In the other corner, Hermes have come further into the spotlight since the acquisition took place. In October last year, LVMH acquired a 17.1 percent stake in Hermes for 1.45 billion euros. However, the luxury label, most well known for their luxurious handbags, has stood back on collaborating with LVMH (who currently own a 20.2 percent stake in the company).

As the butterfly effect continues, Arnault has used the recent acquisition between Bulgari and LVMH as a way to embrace the family notion and open their arms once again to Hermes. Arnault stated ‘I hope this partnership (with Bulgari) will demonstrate that some families are able to understand the meaning of a merger with LVMH.’

LVMH are moving forward with notions of merging peacefully with Hermes, yet at this stage Hermes have their Birkin bags zipped tight. Hermes have fended off all of Arnault’s advances, and have even created a holding company, locking away a 51% controlling stake, making Arnault’s mission a mission virtually impossible.

Whilst Arnault has lost bid battles before, with his most famous being with Gucci, when PPR group took over, the fight for Hermes continues…