LVMH snaps up jeweler Bulgari

MILAN/PARIS (Reuters) - France's LVMH will take over Bulgari in a deal which values the Italian jeweler at 3.7 billion euros and gives the No.1 luxury group more clout in the sector and bigger exposure to emerging markets.

The offer, which priced Bulgari's shares at a 60 percent premium to its average level over the last month, could herald the return of consolidation in the luxury market, which bounced back from the 2009 slump much faster than analysts expected.

For LVMH, adding Bulgari will allow the French luxury group to leverage its global retail network and boost margins by sharing costs.

Founded by billionaire Bernard Arnault, LVMH is built solely on acquisitions. Its brands now include Louis Vuitton handbags, Chaumet and Fred jewelry, Celine and Kenzo fashion, Hennessy cognac and Moet & Chandon champagne.

"Bulgari is one of the best known jewelry brands in the world, with lots of potential to grow on the back of LVMH's global distribution reach and financial muscle," Bernstein luxury analyst Luca Solca said.

"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."

Bulgari had long been seen as a potential target having weakened its finances by embarking on big store investments when its sales were falling. There was regular speculation Switzerland's Swatch Group AG could take it over.

The transaction comes after LVMH built up a 20.2 percent stake in smaller rival Hermes which, like Bulgari, is family controlled. That move prompted Hermes to fight back by creating a controlling family holding within the group to block LVMH's advance.

LVMH will buy 50.4 percent of Bulgari, issuing 16.5 million shares in exchange for 152.5 million shares held by the Bulgari family, the companies said in statements on Monday.

The French group also will launch a buyout offer for the rest of Bulgari shares at 12.25 euros ($17.14) a share. The shares closed at 7.59 euros on Friday and the offer carries a 59.4 percent premium over the average price of the last month.

The deal values the jeweler at about 3.7 billion euros based on Friday's closing price of 111.55 euros for LVMH shares and using 12.25 euros for the free-floating Bulgari shares, according to Reuters calculations.

Kepler analyst Jon Cox said the deal strengthened LVMH in the "hard luxury" segment for watches and jewelry. It will be closely watched by Swatch and Compagnie Financiere Richemont , he said.

"Whether this leads to further M&A I am not sure, given attractive assets are pretty limited in the watch-making sense. Rolex, Patek and Chopard are owned by families and foundations and are in far stronger shape than Bulgari," he said.

Shares in Bulgari were up 58 percent at 12.01 euros by 0933 GMT. LVMH shares were little changed at 111.60 euros after earlier losing almost 2 percent.

NUMBER-TWO SHAREHOLDERS

Bulgari, established in 1884, agreed to the takeover "in order to reinforce, in accordance with its history, values, craftmanship and identity, the long-term development of the Bulgari Group," the company said.

Under the deal, the Bulgari family will become the second-biggest family shareholder in LVMH. Chief Executive Bernard Arnault's Groupe Arnault holds 47.6 percent of LVMH.

The Bulgari family will name two representatives to the LVMH board. Bulgari Chief Executive Francesco Trapani will join LVMH's executive committee and take on management of LVMH's watches and jewelry activities in the second half of the year.

"This should be a catalyst for possible targets in the sector," a French broker said. "As such, we would (see ...) that as a positive for Burberry Group Plc notably."

Trapani told Reuters last summer that his family had no plans to relinquish control of the group.

(Additional reporting by Nigel Tutt and James Regan in Paris, Editing by Will Waterman and Sophie Walker)

($1=.7148 Euro)

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