LONDON — Compagnie Financière Richemont SA, parent of luxury goods companies including Cartier, Chloé 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.
The move means 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 of the company, which will be controlled by Rupert family interests.
Compagnie Financière Richemont will become a business focused solely on luxury goods and will continue to be listed on the Swiss Stock Exchange, while Richemont SA will be renamed Reinet Investments S.C.A, and will be listed on the Luxembourg Stock Exchange. Richemont SA currently holds the group’s stake in BAT with Remgro, an investment company also controlled by the Ruperts, which amounts to a combined 30 percent holding in BAT. Remgro also said Friday that it will spin off 90 percent of its stake in BAT, and the rest will be held by Reinet.
Richemont decided to restructure its business after a change in Luxembourg tax legislation: Without the restructuring, the company would have had 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 Financière Richemont as a focused, Swiss luxury goods company,” said Rupert, executive chairman of Richemont. “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 the changes mean shareholders will be able to trade their investment in Richemont’s luxury goods business and BAT separately, and that the separation would limit any holding company discount in Richemont’s share price.
At the close of trading on the Swiss Stock Exchange Friday, Richemont’s share price had risen 3.4 percent to 64.10 Swiss francs, or $59.33 a share, following the news. Richemont shareholders will be able to subscribe for shares in Reinet using their BAT shares, or to sell their shares on either the Luxembourg Stock Exchange or the Johannesburg Stock Exchange.
Rupert said Reinet has given the Richemont board an undertaking that it will not make investments in the luxury goods field.
“We will see [nonluxury goods] assets becoming available at prices that over the last decade wouldn’t have been available,” said Rupert of the company’s decision to create the Reinet investment vehicle, saying the current economic climate had resulted in an increasing number of investment opportunities. “We believe that, properly done, there is an opportunity for somebody who still acts conservatively to build long- term value over a medium- to long-term period….I think we’re still going through a protracted period of uncertainty.”
Richemont said Compagnie Financière 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. Shares of the two separate companies will begin to trade Oct. 21, pending shareholder approval, which the company will seek at meetings held during September and October. The warrants for the 90 percent of Richemont’s BAT shares will then be distributed to Reinet shareholders on Nov. 3.
“[The luxury goods division] today…is in such a good shape that we feel comfortable to leave it as a pure luxury goods company,” said Rupert. “It’s a vote of confidence in Richemont that we’re actually doing this.”
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