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Richemont Considers Restructuring

Compagnie Financiere Richemont SA, parent of brands including Cartier, Van Cleef & Arpels, IWC, Dunhill and Chloé, may alter its corporate structure because of planned changes in a favorable Luxembourg tax law.

Compagnie Financière Richemont SA, parent of brands including Cartier, Van Cleef & Arpels, IWC, Dunhill and Chloé, may alter its corporate structure because of planned changes in a favorable Luxembourg tax law.

The company said in a statement Monday that it is considering several options, including whether to split its luxury goods operations from its other interests, which include at 19.3 percent stake in British American Tobacco, because of a change in the status of its wholly owned subsidiary, Richemont SA.

That company, which is based in Luxembourg, has had a tax neutral status since it was formed in 1988. Any dividends paid out of Richemont SA are not subject to a withholding tax. Currently dividends from Richemont’s stake in British American Tobacco and other interests are paid through that company.

The special status of Richemont SA and certain other Luxembourg-based holding companies will be abolished at the end of 2010. After that date, they will have to pay a 15 percent tax on all dividends paid to shareholders.

“We’re looking to minimize the negative impact on our shareholders, but it’s too early to say how we’ll be doing that,” said a Richemont spokesman Monday. “Today, we simply wanted the market to be aware of the issue, and of the fact that we are exploring various causes of action.”

The spokesman added: “All we really want to do is to be able to set up a company structure that will take us through the next 20 years.”

Profits at Richemont SA jumped 28 percent in the first half to 824 million euros, or $1.12 billion at average exchange, from 645 million euros, or $816.5 million, on the back of increasing sales and higher gross margins.

The company said Friday that stripping out the profits from its stake in British American Tobacco, the bottom line would have risen 32 percent to 490 million euros, or $667 million, from 371 million euros, or $469.6 million.

This story first appeared in the November 20, 2007 issue of WWD.  Subscribe Today.