Analysts Weigh in On Potential Kering, Moncler Deal
● Rumors of a possible Moncler acquisition by Kering helped the luxury brand’s shares soar on Thursday.
MILAN — Rumors circulating around a possible Kering acquisition of Moncler helped boost luxury shares on the Milan Stock Exchange on Thursday — and analysts generally gave a thumbs up to a potential deal.
Moncler shares closed up 6.52 percent at 41.36 euros, after soaring 10.64 percent to 42.96 euros by noon that day. Salvatore Ferragamo shares closed up 7.38 percent to 18.92 euros and Tod's gained 5.29 percent, closing at 41.78 euros.
A Milan-based market source told WWD that Kering “is seriously thinking of a takeover of Moncler. It has the liquidity and it is already discussing the deal with a number of banks.”
The source estimated the deal could be in the range of 13.5 billion euros to 14 billion euros, a 30-to-40-percent premium on a capitalization of 10 billion euros. “It could take a matter of days, perhaps two weeks,” he forecast, viewing the deal as a response to the recent LVMH Moët Hennessy Louis Vuitton proposed acquisition of Tiffany.
Moncler's chairman, chief executive officer and shareholder Remo Ruffini toned down the speculation, stating that he “would like to clarify that from time to time he maintains contacts and interacts with investors and other sector participants, including the Kering group, in order to explore strategic potential opportunities to further promote the successful development of Moncler. At the moment, there is not any concrete hypothesis under consideration.”
Kering had no comment on the speculation, which was triggered by a Bloomberg report that the French group is holding exploratory talks to buy the luxury brand.
Banca Akros said that, given the strong cash generation, the brand awareness around the world and its unique position in the sector “Moncler deserves a substantial premium compared with the current share price.”
Equita SIM analysts believe Kering's interest is plausible and may be aimed at consolidating the French group. “The strength of the brand's momentum, a leader in its market niche, its quality management and top profitability in the sector” would allow Kering to “dilute the importance of Gucci on the group's results (today more than 83 percent of the group's EBIT) by five points.” In turn, Kering could bring to Moncler “organizational and managerial resources, and support more quickly the various growth projects that are taking place now also with synergies on media buying/rents/corporate/digital.”
Equita suggested, however, that it would be “opportune to maintain Ruffini's creative and strategic leadership.” Ruffini is Moncler's majority shareholder, with a stake of 22.5 percent through Ruffini Partecipazioni, underscored Equita, which even speculated that Ruffini “may consider Kering's offer and decide to stay on” with a minority stake. Equita analysts believe a 30 percent premium on the current share price is “reasonable.” This would mean
Kering paying 50 euros a share, with 2020 multiples of 33 times the price/profits ratio. The operation would push Kering's 2020 profits up by 20 percent.
Goldman Sachs underscored that, if a transaction were to be completed, “we believe that Kering's size, digital platform and exposure to the attractive Millennials' generation could help support a growth of Moncler that would probably be superior to our current forecasts. Given the level of operating profitability of Moncler, we don't think there would be material room for cost synergies, but the attention would be focused on the the acceleration of growth objectives through new revenue opportunities.”
The positioning of Moncler in outerwear “would be fit for any luxury conglomerate,” stated Kepler Cheuvreux analysts.
In their report “Moncler. A Christmas Gift?” Citigroup analysts believe the talks between Kering and Ruffini are more than just that, also in light of Moncler management's recent sale of shares — with the exception of Ruffini. The bank defined Ruffini “an exceptional manager,” who turned around a dusty brand with successful strategies. At the same time, excluding a diversification of the brand, they questioned its future growth and wondered if Ruffini has warmed to the idea of a sale before the company becomes too big and costly to sell.
UBS confirmed a buy rating both on Moncler and Kering with targets of 40 and 555 euros, respectively. “We estimate that, on the basis of a price between 37 and 57 euros, the increase of Kering revenues in 2020 could be around 8 to 9 percent. We believe the transaction would probably be welcomed favorably by shareholders of both companies; however, the value and the timing could be put in discussion by Kering.”
A potential Moncler acquisition would be “logical” for Kering, because it would allow a diversification and lower Gucci's contribution to profits to 72 percent from the current 80 percent, according to UBS. Whether Moncler shareholders would be willing to accept a potential offer remains to be seen, continued the report. “Moncler is a monobrand success story that has no equal. In our opinion, the main difference between the parties is probably given by the price, because from the point of view of Moncler's shareholders the activity can continue to prosper as an independent.”
In a Bernstein report, analysts Luca Solca, Can Yuan and Maria Meita wrote that Kering “seems now short of options to fulfill its ambitions in hard luxury, other than a bluesky mega-merger with Richemont.”
Bernstein believes Ruffini and his senior management team “have driven the brand in near-perfect manner — taking it to unprecedented heights. Adding value by acquiring Moncler is therefore not easy — especially if a significant premium was paid to take it over. For sure, Moncler has yet to develop globally effective digital distribution — the skills and scale of Kering would be very useful on this front. Equally, Moncler would also benefit from stronger negotiating power when it comes to store locations.”
Buying Moncler “would do nothing to enhance Kering's position in hard luxury,” Bernstein added.
At the same time, the French group “would clearly benefit from diversification; given the extraordinary success of Gucci,
EBIT has become [about] 80 percent dependent on it. Moncler would be another step in trying to balance this out. Kering would also secure a first-class management team — assuming they would still all be involved.” In October, Solca argued that Moncler has built an “enviable position” at the top of the outerwear market. “Moncler has done virtually everything right in recent years, from relentless product newness to achieving unprecedented EBIT margins [29.2 percent in 2018] at small scale. No competitor has been able to match their casual-plusexpensive product offer.”
In February, Kering chairman and ceo François-Henri Pinault expressed readiness to add brands to the “backbone” represented by Gucci, after a year of purging the group of non-core brands including Puma and Volcom as part of its transformation into a pure luxury player.
“Our ambition is to make Kering the most influential group in the world in terms of creativity, social and environmental responsibility, innovation and financial performance,” Pinault declared. “We have very important financial resources, which are growing regularly, and we are therefore in a position to seize opportunities.”
Pinault also said at the time that
Kering needed “brands that complete our portfolio, according to a very precise analysis of our brand portfolio, and we are also very vigilant not to overpay for brands, as has been the case recently,” likely pointing to the hefty $2.1 billion price tag paid by Capri Holdings, formerly known as Michael Kors Holdings, for Versace in September 2018. Kering has been at the center of past M&A speculation, as it has been said to be circling Salvatore Ferragamo, Valentino and Versace itself.
Moncler is a textbook success story, spearheaded by Ruffini, who developed the brand from a collection of utilitarian downfilled jackets with mostly local distribution into a global luxury fashion label. Going for what he called his “dream brand,” Ruffini bought the company in 2003, spearheaded its global expansion, publicly listing it in Milan in December 2013 and reaching the $1 billion in sales milestone in 2016, while wiping out its debt.
He has driven Moncler's growth by forming close relationships with designers from Nicolas Ghesquière to Junya Watanabe, Giambattista Valli, who designed Moncler Gamme Rouge, and Thom Browne, who was in charge of the Moncler Gamme Bleu line for men. After 10 years of a successful run with the latter two projects, Ruffini overturned the company's business model and strategy, launching Moncler Genius, a series of drops and capsules with designers ranging from Pierpaolo Piccioli to Simone Rocha and Craig Green, to name a few. As per the latest financial reports, consolidated revenues at Moncler grew 14 percent to 995.3 million euros in the first nine months of the year, despite the impact of social unrest in Hong Kong.
After eight years, Eurazeo in March said it has exited the last of its stake in Moncler, selling 4.8 percent of the company for 445 million euros. That's more money than Eurazeo and its co-investors paid for 45 percent of the company in 2011, making for one of the most successful private equity investments in fashion in recent memory.
Marco De Benedetti, managing director and co-head of Carlyle's European Buyout Group, and an early investor in Moncler, is vice chairman of the brand. As of
March, Ruffini holds more than 66.9 million shares in Moncler through Ruffini Partecipazioni Srl and 151,648 directly; chief corporate and supply officer
Luciano Santel holds 216,000 shares, chief marketing and operating officer Roberto Eggs holds 112,000 shares, and Virginie Morgon, ceo of Eurazeo, holds 9,770 shares.
Moncler shares in one year have risen 45.86 percent.