LVMH deal spurs rally in Moncler, speculation about luxury sector M&A
LVMH takes small stake in Moncler
Moncler shares jump as much as 15% on news of the deal
Deal reinforces LVMH's luxury sector dominance
Adds details
By Mimosa Spencer and Anna Pruchnicka
PARIS, Sept 27 (Reuters) -Shares in Moncler MONC.MI rose sharply on Friday after French rival LVMH LVMH.PA invested in the Italian outerwear specialist, fuelling speculation about the long-term intentions of the owner of Louis Vuitton and Moet & Chandon champagne.
Analysts said the news would likely revive speculation of a potential takeover of Moncler in the long term, but focused on the near-term advantages of the deal for LVMH, which reinforced its dominance in the $400 billion luxury sector.
Shares in Moncler, which had fallen 6.5% this year, jumped as much as 15% in early trade after it was announced late on Thursday that LVMH had purchased a 10% stake in Double R, the investment vehicle controlled by Moncler CEO Remo Ruffini's Ruffini Partecipazioni Holding. Double R currently has a 15.8% stake in Moncler.
The deal amounts to an around 1.6% stake for LVMH in Moncler with the potential to grow it to 4% over the next 18 months, analysts said.
"LVMH is getting maybe the opportunity down the road to be in the first row if and when Moncler could be up for grabs," said Luca Solca, analyst at Bernstein.
Moncler shares were up 10% by 0944 GMT, while shares in LVMH, down 7.5% year-to-date amid a slowdown in the luxury sector, were 2% higher.
Milan-based Moncler, famed for its upmarket puffer jackets and one of the industry's biggest success stories in recent years, had been seen as a potential acquisition target or merger candidate for rival luxury groups seeking to expand.
LUXURY SECTOR BOOST
While LVMH's stake is currently small, and will likely remain small for a while, the agreement recalls the French group's investment in Italian luxury shoemaker Tod's, said JPMorgan.
A longstanding shareholder in Tod's, LVMH in 2021 raised its stake in the Italian group to 10% in a move that sources at the time described of "friendly support".
"While LVMH has a track record of driving consolidation in the sector, it has also proven that it can play as a minority shareholder and a partner for the long term too," said JP Morgan.
News of the deal came on the day that Reuters reported China planned further stimulus measures, which boosted luxury shares, spurring hopes it will revive spending on high end goods.
Investors have grown jittery about a slowdown in the luxury sector, particularly weakness in the key Chinese market, hit by slowing economic growth and a property crisis.
"From LVMH's perspective, we view this deal as opportune given current weakness across the luxury sector," said Piral Dadhania, analyst at RBC.
Moncler's ratio of 12-month forward enterprise value to EBITDA is 10.66, compared with 31 for Hermes HRMS.PA, which is the best performing luxury stock in recent years.
Dadhania said that minority investments into well-established groups were "the next best alternative use of excess cash" as LVMH avoids share buybacks due to potential new taxes on such transactions in France, and while there is a lack of sufficiently large and credible M&A targets.
Before the pandemic, Moncler had been seen as a potential tie-up candidate for French fashion group Kering PRTP.PA.
Kering has since purchased high end perfumer Creed and a stake in red carpet label Valentino, while focusing on reviving sales at its star label Gucci, which fell behind rivals in recent years.
Announcing the Moncler deal on Thursday, LVMH stressed support for Ruffini's vision for the outerwear giant.
Ruffini has fuelled Moncler's growth through buzzy collaborations with fashion designers and celebrity-packed events, as well as acquisitions, purchasing smaller outerwear label Stone Island in 2020.
Shine comes off luxury shares https://tmsnrt.rs/3Bmd9yM
Reporting by Anna Pruchnicka, Mimosa Spencer and Elisa Anzolin; Editing by Amanda Cooper, David Evans and Susan Fenton
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
