Everything You Need to Know About LVMH’s Offer to Take Over Christian Dior
On Tuesday 25th April 2017, the world’s richest luxury conglomerate, LVMH, announced its decision to acquire complete control over Christian Dior. The deal has been brokered over a staggering figure, $13.1 billion to be exact, and the 70 years old high-end Parisian Maison de la Mode will now operate completely under the control of the Arnault family.
The LVMH Moet Hennessy Louis Vuitton luxury conglomerate has decided to buy out all the other shareholders, and the deal has acquired them complete control over the Christion Dior haute couture, women & men’s ready to wear, footwear and leather-wear. The Arnault Family already controlled Parfums Christian Dior, and with these recent developments, the high-end luxury brand has fallen entirely in their lap.
The Arnault family lacked 25.9% of the Dior share, and now with their recent offer to buy out the minority shareholders, LVMH has thrown in a handsome bargain in return. LVMH has decided to buy the remaining shares with a combination of cash and Hermes shares, and together they reach the value of $282 each, or 260 Euros per share.
Keeping the financial jargon aside, these arrangements indicate that LVMH’s fashion & leather retailing division is acquiring Christian Dior at the economic value of €6.5 billion. The fashion industry is hopeful that this recent offer from LVMH to acquire Christian Dior will bring about a simplification in terms of ownership of the couture brand.
Reports reveal that the Christian Dior Company, which currently operates the couture end of the business for this luxury brand will still operate and claim ownership to 41% of the share capital earned by LVMH. Furthermore, it will also retain 56.8% voting rights to make certain key decision. This indicates that the current owners and operators of the Christian Dior brand will always be the controlling shareholders, and ultimate decision-makers.
Mr Arnault shared a statement with the press regarding his intentions to acquire the couture brand, saying,
“The corresponding transactions will allow the simplification of the structures, long requested by the market, and the strengthening of LVMH’s fashion and leather goods division thanks to the acquisition of Christian Dior Couture, one of the most iconic brands worldwide”.
It was in 1984 that Bernard Arnault first began his efforts to acquire Christian Dior. It was a matter of time that all the high-end luxury fashion houses fell prey to his financial suave and his sharp business acumen.
It started when he acquired and revived Boussac from collapsing on the verge of bankruptcy, depriving Christian Dior of its founding cornerstone. After that, it didn’t take long for Mr Arnault to immerse Christian Dior into his illustrious empire of luxury Parisian fashion houses.
However, over the years, Christian Dior has been operating in fragments as LVMH has owned Parfums Christian Dior for a very long time, and considering all the other high-end labels that comprise LVMH’s highly complicated acquisition model, including Givenchy, Celine, Hermes and Berluti, Dior, sadly, became more of a “sister” luxury label.
LVMH on the other hand, remained unfazed and unaffected by this fragmentation as it continued to add more brands to its illustrious holding structure. However, in recent years, its growth has faced several challenges such as geographical limitations, political turfs and currency fluctuations. But despite these challenges, the rising demand of luxury products in China and Europe has caused its profits to soar 15% higher as opposed to last year’s estimates.
The experts and analysts in the industry had always seen this coming because it seemed only natural for LVMH to acquire Christian Dior. One can safely assume that the fashion industry is looking forward towards this take over with positivity, and it the deal is expected to be cemented in the latter half of 2017.
Experts believe that this deal will increase the earnings and share value of LVMH in the very first year, as Luca Sola, managing director of luxury goods at Exane BNP Paribas, pointed out,
“The deal adds a strong brand to the LVMH portfolio at a reasonable valuation and on an accretive basis,” he mentioned in a note to the investors. “It reduces the risk of LVMH potentially buying ‘trophy assets’ at the expense of ROIC dilution.”
As far as the profit scenario at Christian Dior is concerned, they’ve only been doubling over and over for the past five years. The current creative director of the couture brand, Maria Grazia Chiuri, who also happens to be the very first female to hold this illustrious and coveted position, sadly didn’t manage to garner raving reviews about her talented and art.
However, she has managed to funnel in an excess revenue of €2 billion, and €270 million from recurring operations. The reviews clearly don’t matter, do they?