Largest maker of luxury goods is now to purchase Bulgari SpA

Six weeks after LVMH Moet Hennessy Louis Vuitton SA said it wouldn’t overpay for acquisitions, the world’s largest maker of luxury goods is now spending more than ever to purchase Bulgari SpA.

Chief Executive Officer Bernard Arnault, who built Paris- based LVMH through acquisitions over more than two decades, is paying the biggest premium in 10 years to gain control of the world’s third-largest jeweler from Bulgari’s founding family. While Bulgari’s earnings slumped 67 percent in the past three years and the company has a lower operating margin than any of its largest rivals, Arnault is betting he can boost profitability as Bulgari’s sales reach a record this year.

‘Skilled Operators’

Still, “they’re skilled operators and they’re used to dealing in the luxury-goods business,” Moffett said. “There are a lot of ways that they could mess it up, but the odds are that they won’t.”

LVMH, founded in 1987 from the merger of Moet Hennessy and Louis Vuitton, has completed more than two dozen acquisitions in the past decade as Arnault forged a luxury goods maker now valued at $77 billion. Sales have almost doubled in that span to 20.3 billion euros, Bloomberg data show.

Bulgari would be Arnault’s biggest takeover attempt since shareholders rejected his $6.15 billion bid for Gucci Group NV in 1999, the data show.

LVMH will buy the 50.4 percent stake owned by Bulgari’s founding family using stock and then make a tender offer for the rest in cash, the companies said yesterday. The deal values the family’s stake at 1.91 billion euros, while LVMH’s 12.25 euro per share offer to minority investors will cost almost 1.84 billion euros, data compiled by Bloomberg show.

‘Very Picky’

Philippe Pascal, LVMH’s then-head of watches and jewelry, said earlier this year that the company wasn’t in a rush to pursue acquisitions and wouldn’t overpay.

“We will not bid too high,” he said. “We are very picky.”

LVMH said yesterday that Bulgari CEO Francesco Trapani will replace Pascal, who will remain on the company’s executive committee and be given new responsibilities in the group.

In October, LVMH acquired a 17.1 percent stake in Hermes for 1.45 billion euros, valuing the transaction at 15.5 times Ebitda, or almost half as much as the Bulgari deal, data compiled by Bloomberg show.

Hermes, the Paris-based maker of Birkin and Kelly bags, has said it isn’t interested in collaborating with LVMH, which has built a 20.2 percent stake.

“If you want to seduce a beautiful woman, you don’t start by raping her from behind,” Hermes CEO Patrick Thomas said on March 4 at a presentation in Paris.