LONDON – Compagnie Financiere Richemont SA, parent of luxury goods companies including Cartier, Chloe and Van Cleef & Arpels, said it would proceed with its plan to create two separate businesses – a luxury goods business and an investment vehicle listed on the Luxembourg Stock Exchange.
It means that 90 percent of Richemont’s 19 percent stake in British American Tobacco will be distributed to Richemont’s shareholders as warrants for shares in a new investment vehicle called Reinet. The company’s remaining shares in BAT will be held by Reinet with Johann Rupert as chairman and the company will be controlled by Rupert family interests.
Compagnie Financiere Richemont will become a business focused solely on luxury goods and continue to be listed on the Swiss Stock Exchange, while Richemont SA will be named Reinet Investments S.C.A, and will be listed on the Luxembourg Stock Exchange.
Richemont decided to restructure its business after a change in Luxembourg tax legislation: Without the restructuring the company would have to pay a 15 percent tax on dividends from the BAT stake to shareholders after 2010. Richemont’s stake in BAT is currently held through a Luxembourg investment vehicle, and it accounts for its interest in BAT as an associated company.
“The proposals…separate the luxury business from the investment holding activities and establish Compagnie Financiere Richemont as a focused, Swiss luxury goods company,” said Rupert, executive chairman of Richemont, in a statement. “CFR will continue as a significant global company in its own right and will have a strong balance sheet with the financial resources to allow it to grow both organically and, potentially, through acquisitions.”
Richemont said that the changes mean that shareholders will be able to trade their investment in Richemont’s luxury goods business and British American Tobacco separately, and that the separation would limit any holding company discount in Richemont’s share price.
Richemont’s share price rose 2.82 percent to 63.75 Swiss francs, or $59.18, during morning trading on the Swiss Stock Exchange Friday following the news. Richemont shareholders will be able to subscribe for shares in Reinet using their British American Tobacco shares, or to sell their shares on either the Luxembourg Stock Exchange or the Johannesburg Stock Exchange.
Richemont said that Compagnie Financiere Richemont’s net income will be reduced by the elimination of the equity contribution of BAT, but that impact won’t come during the current financial year. The two separate companies will begin to trade October 21, pending shareholder approval.
“[The luxury goods division] today … is in such good shape that we feel comfortable to leave it as a pure luxury goods company,” said Rupert during a conference call Friday.