According to U.S. based media luxury giant LVMH has had numerous discussions with Ralph Lauren Corporation about buying the entire Ralph Lauren business. LVMH is the owner of numerous, mostly European, luxury brands including Louis Vuitton, Dior, Givenchy, Fendi and many others. LVMH also recently bought Tiffany&Co, which has been enjoying a great revival.
Ralph Lauren is a big company yet this would not be a challenge for LVMH which generates more than 10 times the revenue of Ralph Lauren. LVMH has also demonstrated the unique skill of maintaining the luxury level of its owned brands without cheapening their market position to generate short-term gains.
A sale to LVMH would secure the future of the business under the long-term ownership and stewardship of LVMH, as other labels have done. It would be viewed by founder Ralph Lauren (aged 82) as a crowning achievement after building one of the most valuable fashion brands in the U.S. Last year, the company sold apparel chain Club Monaco to the PE firm Regent as part of its makeover.
Financially, Ralph Lauren sells for a multiple of EBITDA (earnings before interest, taxes, depreciation and amortization) of less than 9x while LVMH sells for just under 16x. The practical implication is that Ralph Lauren’s earnings, when added to LVMH’s, will make the LVMH stock price go up immediately. That increase will be reduced by the premium LVMH will have to pay to motivate shareholders to sell but there’s plenty of room to pay more and still have the deal be accretive.
No formal announcement has been made and there may not be a deal, it may just be only talk. This would be a very attractive deal for LVMH. So it depends on how willing Ralph Lauren Corporation is to discuss being sold. If they are willing, it wouldn’t take more than 60 days for a deal to be announced, it will just depend on how quickly they want to advance the process.
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