LVMH deal spurs rally in Moncler, speculation about luxury sector M&A

Shares in Moncler rose sharply on Friday after French rival LVMH invested in the Italian outerwear specialist, fuelling speculation about the long-term intentions of the owner of Louis Vuitton and Moet & Chandon champagne.

Analysts said the news would likely revive speculation of a potential takeover of Moncler in the long term, but focused on the near-term advantages of the deal for LVMH, which reinforced its dominance in the $400 billion luxury sector.

Shares in Moncler, which had fallen 6.5 per cent this year, jumped as much as 15 per cent in early trade after it was announced late on Thursday that LVMH had purchased a 10 per cent stake in Double R, the investment vehicle controlled by Moncler CEO Remo Ruffini's Ruffini Partecipazioni Holding. Double R currently has a 15.8 per cent stake in Moncler.

The deal amounts to an around 1.6 per cent stake for LVMH in Moncler with the potential to grow it to 4 per cent over the next 18 months, analysts said.

"LVMH is getting maybe the opportunity down the road to be in the first row if and when Moncler could be up for grabs," said Luca Solca, analyst at Bernstein.

Moncler shares were up 10 per cent by 0944 GMT, while shares in LVMH, down 7.5 per cent year-to-date amid a slowdown in the luxury sector, were 2 per cent higher.

Milan-based Moncler, famed for its upmarket puffer jackets and one of the industry's biggest success stories in recent years, had been seen as a potential acquisition target or merger candidate for rival luxury groups seeking to expand.

While LVMH's stake is currently small, and will likely remain small for a while, the agreement recalls the French group's investment in Italian luxury shoemaker Tod's, said JPMorgan.

A longstanding shareholder in Tod's, LVMH in 2021 raised its stake in the Italian group to 10 per cent in a move that sources at the time described of "friendly support".

"While LVMH has a track record of driving consolidation in the sector, it has also proven that it can play as a minority shareholder and a partner for the long term too," said JP Morgan.

News of the deal came on the day that Reuters reported China planned further stimulus measures, which boosted luxury shares, spurring hopes it will revive spending on high end goods.

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

"From LVMH's perspective, we view this deal as opportune given current weakness across the luxury sector," said Piral Dadhania, analyst at RBC.

Moncler's ratio of 12-month forward enterprise value to EBITDA is 10.66, compared with 31 for Hermes, which is the best performing luxury stock in recent years.

Dadhania said that minority investments into well-established groups were "the next best alternative use of excess cash" as LVMH avoids share buybacks due to potential new taxes on such transactions in France, and while there is a lack of sufficiently large and credible M&A targets.

Before the pandemic, Moncler had been seen as a potential tie-up candidate for French fashion group Kering .

Kering has since purchased high end perfumer Creed and a stake in red carpet label Valentino, while focusing on reviving sales at its star label Gucci, which fell behind rivals in recent years.

Announcing the Moncler deal on Thursday, LVMH stressed support for Ruffini's vision for the outerwear giant.

Ruffini has fuelled Moncler's growth through buzzy collaborations with fashion designers and celebrity-packed events, as well as acquisitions, purchasing smaller outerwear label Stone Island in 2020.