The decision by Bernard Arnault, the French billionaire, to acquire Christian Dior Couture and bring it under the fold of LMVH has been positively received by investors and analysts. According to analysts, this is because a brand that was already strong is only going to end up with more firepower. Consequently, LMVH shares rose by 3.9% to close at $244 after the news of the intended acquisition broke.
Some of the analysts who welcomed the move did so on the basis that the resulting scale and synergies that would come from the acquisition would improve earnings.
“Overall, we think this deal is strategically good for LVMH, strengthening its already well-balanced portfolio with another top brand, and also giving it room to improve its earnings through further scale and synergies,” read a note to investors from Bernstein Research.
Profitable perfume unit
A Barclays’ research note also hailed the move saying that it was a good acquisition that would result in a reunion of the Dior brand with LMVH’s very profitable perfume business. If all goes according to plan, Christian Dior will become the second-biggest brand in the fashion division of LMVH. The only brand that will be bigger than Christian Dior will be Louis Vuitton. Behind Christian Dior will be Fendi.
According to Arnault, one other benefit of the deal would be simplifying the LMVH structure and assisting in reinforcing his family’s control. Despite expressing confidence in the economy of France and that of LMVH, Arnault warned that a correction could be visited on the luxury sector and it could be the biggest that the industry has ever seen since the global financial crisis of 2008.
The deal comes at a time when Christian Dior has been performing strongly with the market conditions also being favorable. Currently shares of the luxury fashion brand are at a historically high level. And with the interest rates being low, LMVH will be able to give a good deal to its shareholders and get a loan to fund the purchase.
The deal also coincides with Dior’s 70th anniversary which will be marked later in the year. Arnault first acquired the brand more than 30 years ago when it was part of a textile group that was facing bankruptcy. In the last half a decade, revenues for the brand have doubled to reach $2.2 billion.
Unlike in most other cases of mergers and acquisitions, the chief executive officer of Christian Dior, Sidney Toledano, disclosed that he was not expecting the synergies to lead to job cuts.