PARIS — Divesting its wine-and-spirits division makes no sense for LVMH Moët Hennessy Louis Vuitton, according to an analysts’ report published Thursday.
Following media speculation last week, officially denied by LVMH, that it was in talks to sell Moët Hennessy to premium drinks firm Diageo, which already has a 34 percent stake in that business, HSBC declared more likely scenarios as the status quo or a reverse deal, or LVMH buys Diageo’s share in the business, which includes Champagne houses Moët & Chandon, Dom Pérignon and Veuve Clicquot.
“We look at various scenarios resulting from the recent press reports…and come to the conclusion that unless LVMH finds a substantial investment in hard luxury it can make with the proceeds of exiting MH (and even then) this deal does not make strategic sense,” stated the report, coauthored by Erwan Rambourg, Antoine Belge and Sophie Dargnies.
They pointed out that LVMH wouldn’t actually need to divest Moët Hennessy in order to buy listed luxury players such as Tiffany, Bulgari, Burberry and Tod’s, if those brands were indeed up for sale. Given Tiffany is already developing its watch business with the Swatch group, a deal there seems belated, the report argued, adding the Bulgari family insisted they were not sellers as recently as April. Tod’s and Burberry don’t make sense for a group already strong in fashion and leather goods, the report continued. As for buying Coach, Hermès or Gucci, the analysts equate that to “shooting one’s self in the foot. Why pay a premium to develop a competitor to Louis Vuitton?”
Given LVMH’s weakness in watches and jewelry, acquiring Compagnie Financière Richemont or Rolex would make sense, the report stated. But the analysts feel the timing isn’t right. And while management at Rolex has changed, analysts see no reason why Rolex would become a forced seller. Buying nonlisted brands such as Patek Philippe, Chopard or Audemars Piguet would not require the sale of Moët Hennessy.
As for buying Chanel, the report stated: “Probably one of the best positioned in both fashion and fragrances-cosmetics, but then again we feel these are relatively nonpriorities for LVMH and we do not see the Wertheimer brothers as becoming forced sellers.”
Noting Moët Hennessy is the luxury goods giant’s second most profitable business after Louis Vuitton, analysts conclude it’s a key asset. “We believe the most likely outcome in the short term is the status quo,” the report concluded. “Longer term, while we do not see much rationale for LVMH selling its MH stake, we believe Diageo selling its 34 percent stake to LVMH could make sense.”