August 5, 2021

Kering and Richemont both good to marry against LVMH

The finalization of the acquisition of Tiffany by the insatiable leader in luxury, LVMH, relegates its direct competitors to a long distance and revives speculation on major maneuvers in the sector. The specialist in the luxury sector within the firm Sanford C. Bernstein, Luca Solca, thus put on the table before Christmas the hypothesis of a merger between the groups Kering (Gucci, Saint Laurent, Bottega Veneta) and Richemont (Cartier , Montblanc, Jaeger-Le-Coultre…). An idea already agitated in the past, but whose arguments are reinforced. “Kering has done a lot to deserve more credit in the sector” , notes Luca Solca. Through acquisitions and disposals, the group led by François-Henri Pinault has focused on luxury and is benefiting from the incredible momentum of Gucci. The French reacted with a sober « no comment ».

“For Kering, it would be superb, an extraordinary deal on thepaper, gets carried away Arnaud Cadart, portfolio manager at Flornoy and luxury specialist. It’s in a corner of François-Henri Pinault’s head, that’s for sure. ” Failing to catch up with LVMH, which will approach the bar of 60 billion euros in turnover with Tiffany, a Kering-Richemont alliance would make it possible to revive the momentum of Kering, which is lacking in acquisitions. The last one, the watches

Ulysses Nar-din, date of… 2014.

Perfect complementarity

As for Cartier, the brand new alliance between Bulgari (LVMH) and Tiffany risks attacking its positions head-on. “Richemont will have to whip to remain dominant” , warns Arnaud Cadart. The Swiss group retains extraordinary nuggets, starting with Cartier, which is very powerful in Asia. And associating Cartier and Gucci would mitigate the risks for two groups very dependent on their leading brand: Gucci weighs 9.6 billion in sales in 2019, out of Kering’s 15.9 billion. Above all, this team would perfectly complement each other. Kering is discreet in watchmaking and jewelry, where Richemont dominates, while François-Henri Pinault’s group shines in fashion or accessories, less present at Richemont.

It remains to bring the men together. François-Henri Pinault has a foothold in London, like the main shareholder of Richemont, the South African Johann Rupert. Both see each other and can rejoice in a happy common initiative. Their alliance in 2017 to develop Kering Eyewear, which designs, manufactures and markets eyewear for Gucci, Saint Laurent or Cartier, has led to real success. He can only favorably dispose the two partners at a time when the market is questioning the succession of Johann Rupert, 70 years old.

Among his three children, none seems to date positioned to take over the destinies of Riche-mont. However, Rupert locked the group by controlling 10% of the capital and 50% of the voting rights. How does this very discreet boss see the future? How would he wish, if at all, to enhance his power in a new whole? Turnover is close (15.9 billion euros for Kering, 14.2 for Richemont), but since 2016, Kering has taken to the stock market, valued at 74 billion euros against 43 for Richemont. A gap due to uneven profitability: the operating margin reached 30.1% in 2019 for Kering, a historic record, against 10.7% in 2019-2020 for Richemont, affected by the Covid. While waiting for the two men to agree, this Meccano luxury giant has enough to hysterize investment banks …

Johann Rupert, President of Richemont. This 70-year-old South African locks down his group.

(M. Kesseler/Nyt-Redux-Réa)

François-Henri Pinault, CEO of Kering.  He made a first alliance with Rupert in the glasses.

François-Henri Pinault, CEO of Kering. He made a first alliance with Rupert in the glasses.

(Getty Images/AFP)

MARRIAGE OF CONVENIENCE

DRY

15.9 billion euros in turnover (2019).

30,1 % operating margin.

73.8 billion valuation euros.

RICHEMONT

14.2 billion euros in annual turnover (March 2020).

10,7 % operating margin.

43.6 billion valuation euros.

SOURCES: COMPANIES.

Marc Baudriller