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Arnault Grows Empire: Luxury Titan Investing n Real Estate, Internet

It's hardly his spending spree of the late Nineties, but Bernard Arnault remains one of the industry's most active, savvy and unpredictable investors.

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PARIS — It’s hardly his spending spree of the late Nineties, but Bernard Arnault remains one of the industry’s most active, savvy and unpredictable investors.

And even as the luxury titan and chairman and chief executive officer of LVMH Moët Hennessy Louis Vuitton zeroes in on his latest conquest, the French financial daily Les Echos, he has teams of advisers hunting on a worldwide basis for other attractive places to park his money.

According to sources, the richest man in France and the seventh wealthiest in the world — with a fortune estimated at $26 billion — has retained a keen interest in real estate and has been actively investing in property, particularly in fast-developing China and Macau. It is understood that some of that real estate is to be developed into future shopping malls.

Arnault’s personal monies, mostly funneled through Groupe Arnault, are also going into private equity and hedge funds (including the Canadian fund Sagard II and Los Angeles-based Colony Capital), plus direct investments in a variety of businesses, including retail. Several dedicated teams are said to be hunting for possible direct investments, with a particular interest in emerging markets.

Arnault declined to comment for this story.

Early last month, the European Commission cleared Arnault’s acquisition of online travel agency Go Voyages. For that transaction, the business titan employed a new entity called Financière Agache Private Equity, part of Groupe Arnault. The firm ultimately teamed with Compagnie Nationale à Portefeuille, or CNP, an investment vehicle of the Belgian financier Albert Frere, a close friend and longtime business ally of Arnault’s. (The Go Voyages founders also retain a minority of the capital.)

In March, Arnault, 58, surprised the industry by joining Colony Capital to acquire a 9.1 percent stake in Carrefour, taking the king of luxury into the supermarket aisle. Arnault’s presence already seems to have had an impact: The giant retailer, the world’s second-largest after Wal-Mart, has agreed to leverage its real estate assets and vowed to ramp up sales growth and profitability. On a much smaller scale, Arnault made an investment estimated at about $30 million this year in Belle International Holdings Ltd., a giant Chinese shoe retailer. His investment, at the time the company was introduced on the stock market last May, represents about 2.9 percent of Belle’s shares.

This story first appeared in the October 4, 2007 issue of WWD.  Subscribe Today.

Other investments under the Groupe Arnault umbrella include assorted real estate in France and Russia, the prestigious Cheval Blanc vineyard (a 50-50 investment with Frere), a Cheval Blanc hotel in Courchevel, France, and stakes in several Web sites, including the real estate specialist SeLoger.com and the gambling site Betfair.com.

To be sure, Arnault has slowed his pace of acquisitions via LVMH — particularly in fashion and leather goods.

Besides Les Echos — a transaction expected to close soon after several months of exclusive negotiations with owner Pearson Group plc — LVMH in May bought a majority stake in Wen Jun Distillery, a Chinese maker of premium white spirits. That deal came three years after another big wines and spirits buy: the Scottish whisky maker Glenmorangie.

LVMH’s 2006 annual report also details investments in two associate businesses: a 40 percent stake in Mongoual SA, a real estate firm whose holdings include LVMH’s head office, and a 23.1 percent stake in Micromania, a retailer of video games and consoles.

Arnault has repeatedly stated he intends to focus on organic growth at LVMH, a conglomeration of some 50 luxury brands, several of them still in the early stages of rejuvenation.

His reticence about buying more brands stems from a lack of attractive targets in fashion and leather goods, LVMH’s biggest business activity, and steep valuations.

“He’s not investing in luxury,” said one industry source, noting Arnault generally weighs investment opportunities based on a “profitability strategy,” not based on any particular sector.

LVMH also maintains a 3.5 percent stake in the Italian luxury firm Tod’s SpA and a 7.2 percent stake in Xinyu Hengdeli Holdings Ltd., a Chinese wholesaler and retailer of watches.

Given the scale of his wealth — and the Byzantine nature of his business dealings — Arnault’s far-flung investments are often attributed to the wrong entity in the media.

He has continued to make deals via various investment arms. L Capital, a private equity fund sponsored by LVMH, in July 2006 acquired a majority stake in Piazza Sempione, the Italian fashion manufacturer. Over the past five years, L Capital has completed 16 investments in everything from fashion accessories to food and garden furniture. Since 2005, L Capital has been the principal investor in Micromania.

Groupe Arnault and Financière Agache are Arnault vehicles separate from LVMH, but they do have business ties. For example, Groupe Arnault assists LVMH with development, engineering, corporate law and real estate. Under its service agreement, LVMH pays Groupe Arnault 4.5 million euros, or $6.2 million, per year, according to LVMH’s 2006 annual report.

LVMH also leases space to both Groupe Arnault and Financière Agache and provides certain administrative assistance.

Then there is the 1 billion euro, or $1.38 billion, fund Arnault established last year with longtime business ally Frere. The fund’s mission is to invest in mainly European companies, taking both minority and majority stakes in listed and unlisted firms. It is understood the partners are open to various sectors, and are said to have kicked the tires of carmakers, television and real estate firms, but they have yet to announce their first transaction.

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