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French luxury goods house LVMH is set to acquire Italian jeweller, Bulgari for around EUR3.7 billion, with a share price reflecting a 60% premium compared to average levels over the previous month.
The deal could signal further consolidation in the market, which has revived from the economic downturn unexpectedly quickly. The high luxury segment in particular is predicted to grow in value by 8%, in comparison with the mass market's predicted 3% gain.
Kepler analyst Jon Cox states that the deal will reinforced LVMH in the "hard luxury" segment for watches and jewelry , a market which had previously been a weak point in LVMH's portfolio.
Bernstein luxury analyst Luca Solca states that "Media buying and retail development would benefit from the deal. Watches and jewelry is indeed the weakest area at LVMH, where its brands are trailing larger and better known competitors."
The combined group will have greater presence globally and in particular in the emerging markets. The Asia Pacific region (excluding Japan) has overtaken the Americas as the leading region for jewelry and watch retailing.
Bulgari will join a stable of LVMH acquisitions. Its brands now include Louis Vuitton handbags, Chaumet and Fred jewelry, Celine and Kenzo fashion, Hennessy cognac and Moet & Chandon champagne.
Bulgari assented to the deal "in order to reinforce, in accordance with its history, values, craftmanship and identity, the long-term development of the Bulgari Group," according to a company spokesman.
Under the takeover arrangements, the Bulgari family will become the second-biggest family shareholder in LVMH and will have two representatives on the LVMH board. Bulgari CEO Francesco Trapani will join LVMH's executive committee in charge of the management of LVMH's watches and jewelry activities in the latter half of the year.
Author: Lynn Shaw, Analyst
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