LVMH deal sparks momentum in Moncler, M&A speculation in luxury sector By Reuters

By Mimosa Spencer and Anna Pruchnicka

PARIS (Reuters) – Moncler shares rose sharply on Friday after French rival LVMH invested in the Italian outerwear specialist, fueling speculation about the long-term intentions of the owner of Louis Vuitton and Moet & Chandon champagne.

Analysts said the news was likely to reignite speculation about a potential long-term takeover of Moncler, but focused on the short-term benefits of the deal for LVMH, which has strengthened its dominance in the $400 billion luxury sector.

Moncler shares, down 6.5 percent this year, rose as much as 15 percent in early trade after it was announced late Thursday that LVMH had bought a 10 percent stake in Double R, the controlled investment vehicle by Ruffini, Moncler CEO Remo Ruffini. Partecipazioni Holding. Double R currently owns a 15.8% stake in Moncler.

The deal amounts to a roughly 1.6 percent stake for LVMH in Moncler, with the potential to rise to 4 percent over the next 18 months, analysts said.

“LVMH probably gets the opportunity to be in the front row if and when Moncler could be put up for grabs,” said Luca Solca, an analyst at Bernstein.

Moncler shares were up 10 percent by 09:44 GMT, while LVMH shares, down 7.5 percent year-to-date amid a slowdown in the luxury sector, were 2 percent higher.

Milan-based Moncler, renowned for its luxury puff jackets and one of the industry’s biggest success stories in recent years, has been seen as a potential acquisition target or merger candidate for rival luxury groups looking to extended.

BOOST THE LUXURY SECTOR

While LVMH’s stake is currently small and likely to remain small for some time, the deal is reminiscent of the French group’s investment in Italian luxury shoe maker Tod’s, JPMorgan said.

A long-time shareholder in Tod’s, LVMH in 2021 increased its stake in the Italian group to 10% in a move that sources at the time described as “friendly support”.

“While LVMH has a track record of consolidation in the sector, it has also shown it can play as a minority shareholder and as a long-term partner,” JP Morgan said.

News of the deal came on the day Reuters reported that China planned new stimulus measures that have boosted luxury stocks, fueling hopes that it will revive spending on high-end goods.

Investors have worried about a slowdown in the luxury sector, particularly weakness in the key Chinese market, hit by slowing economic growth and a housing crisis.

“From LVMH’s perspective, we see this transaction as timely given the current weakness in the luxury sector,” said RBC analyst Piral Dadhania.

Moncler’s trailing 12-month enterprise value to EBITDA ratio is 10.66, compared to 31 for Hermes, which is the best luxury stock in years.

Dadhania said minority investments in well-established groups were “the best alternative to use excess cash” as LVMH avoids share buybacks because of potential new taxes on such transactions in France, and while there is a lack of targets of sufficiently large and credible mergers and acquisitions. .

Before the pandemic, Moncler was seen as a potential candidate for a French fashion group Kering (EPA:).

Since then, Kering has acquired high-end perfumer Creed and a stake in red-carpet house Valentino, while focusing on reviving sales at its star house Gucci, which have lagged behind rivals in recent years.

In announcing the Moncler deal on Thursday, LVMH underlined its support for Ruffini’s vision for the outerwear giant.

Ruffini has fueled Moncler’s growth through lively collaborations with fashion designers and celebrity-studded events, as well as through acquisitions, acquiring smaller outerwear brand Stone Island in 2020.