Strategy

LVMH Extends Control of Christian Dior

Bernard Arnault, LVMH's billionaire boss, will acquire the Dior shares he doesn't already own in a vote of confidence in the luxury sector's prospe...
Matthew HellerApril 25, 2017
LVMH Extends Control of Christian Dior

LVMH is cementing its ties with Christian Dior through a deal in which the luxury group’s boss, Bernard Arnault, will acquire the 25.9% of Dior he does not already own for 12.1 billion euros ($13.1 billion).

Arnault, France’s richest man, has been under pressure from investors to simplify the complex corporate structure between his Groupe Arnault holding company, LVMH, and Dior. Once he completes the Dior transaction, LVMH would then buy Christian Dior Couture for an enterprise value of 6.5 billion euros ($7.0 billion).

The Dior-Arnault deal, which will be financed with a mixture of cash and Hermès shares, values the iconic fashion house at 260 euros, or $282, a share, representing a 15% premium over the closing price on Monday.

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The two transactions “will allow the simplification of the structures, long requested by the market, and the strengthening of LVMH’s fashion and leather goods division,” Arnault said in a news release, adding that they “illustrated the commitment of my family group and emphasize its confidence” in LVMH’s long-term prospects.

The markets reacted favorably to the deal, with shares in Christian Dior jumping about 11% and LVMH shares rising 5.4% in trading Tuesday.

“It adds a strong brand to the LVMH portfolio at a reasonable valuation and on an accretive basis,” Luca Solca, head of luxury goods at Exane BNP Paribas, wrote in a client note. “It reduces the risk that LVMH buys a trophy asset elsewhere and pays a fortune for it.”

LVMH already owns Dior’s fragrance and cosmetics business. As The New York Times reports, the company has been outperforming “the wider luxury market, which has faltered in recent years in the face of fears of geopolitical conflict and currency fluctuations.”

“We’re not actively looking at external acquisitions, we’re focusing on internal growth,” Arnault told the Financial Times. “Given the current market, fewer and fewer assets are looking attractive to us. And the best assets are not for sale.”

By paying for part of the Dior shares with Hermès stock, Arnault will eventually sell out of his stake in Hermès, ending a long tussle between the two family groups.