Since the start of the year, there have been rumours about a potential acquisition by the world’s largest luxury group LVMH of its fellow rival Richemont Group. The “whispers” were first reported by the Swiss newspaper Finanz und Wartscaft in February this year and has since gathered momentum. After LVMH’s successful turnover at Tiffany & Co., those in the luxury M&A space are speculating what the group’s next moves would be and many pointed towards Richemont’s crown jewel: Cartier.
It is understandable why Bernard Arnault would want to add Cartier to its portfolio of brands; the maison is among the largest in the watchmaking and jewellery industry. Furthermore, according to Richemont’s latest financial results, its jewellery masons consisting of Buccellati, Cartier and Van Cleef & Arpels generated 21 per cent sales growth compared to the prior year. This amounted to €13.4 billion, and overall, for the year ended 31 March 2023, the group reported strong performance with sales which saw it increase by 19 per cent to an all-time high of €20 billion.
However, there is much more that LVMH can gain from a total takeover of the Richemont Group. Not only will it further cement LVMH’s position in the area of jewellery making, but it will also boost its market share in the specialist watchmaking sector. Notably, Vacheron Constantin was singled out to have reached one billion euros in sales, and Cartier watchmaking remains one of the largest in the world just after Rolex. Internally, with the addition of Richemont Group, the Watches & Jewellery business unit at LVMH will likely see an increase in its revenue, and this narrows the gap against its cash cow that is the Fashion & Leather Goods.
The takeover will also become the largest in history after LVMH’s US$15.8 billion buyout of Tiffany & Co. in 2021. According to Bloomberg, LVMH has a market capitalisation of more than US$400 billion and buying over Richemont Group is within the means of the company. “Assuming a 30 per cent premium, acquiring Richemont would cost about US$116 billion.”
During the press call on 12 May, Richemont Group’s chairman Johann Rupert put to rest the acquisition rumours and said that the company was not for sale. The South African billionaire shared he has had numerous discussions with LVMH’s Bernard Arnault but ultimately both “respect each other’s independence”. This is not the first time Richemont has to address such rumours. Two years ago, Richemont also decided against a deal with Kering Group.
According to Luca Solca, a senior analyst at Bernstein consultancy, Richemont has revealed modifications to its board and senior management framework to strengthen its positions and effectively handle succession. Solca commented that the market would likely interpret these developments as further evidence that Richemont intends to maintain its independence and avoid significant mergers and acquisitions that would lead to transformative changes.
Even if the huge price tag is not an issue for LVMH, there are still several obstacles that the group has to overcome. In an article by WWD, analyst Oliver Chen at TD Cowen raised some pertinent points. Chen estimated the buyout by LVMH would be “dilutive to LVMH’s finances”. This includes incurring a debt, getting approval from global anti-trust regulators, convincing Richemont’s owner Johann Rupert and successfully integrating the acquired group into LVMH. Even the savviest dealmaker may be unable to pull this off considering the various factors.
With an extensive collection of 26 luxury brands and businesses such as Cartier, Chloé, Montblanc, IWC, A. Lange & Söhne, Van Cleef & Arpels, Jaeger-LeCoultre, Panerai, Piaget, and Vacheron Constantin, as well as retail platforms under YOOX Net-a-Porter Group, Richemont currently holds the position of the fourth-largest luxury company globally based on its market capitalisation.
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