PARIS — Merger and acquisitions may be the hot topic driving international stock markets these days, but at least one European investment firm believes the M&A story should be downplayed, at least in the luxury sector.

In a report this week, HSBC analysts Antoine Belge and Erwan Rambourg said, “M&A considerations [in luxury] should not be given too much weight” and called speculation about family-controlled brands like Hermès, Tod’s and Bulgari “inflated.”

Despite talk that those brands are ripe for takeover, the analysts contend the firms will not change hands soon since the controlling families don’t appear ready to relinquish power. “Playing the speculative interest to family-controlled, mono-brand companies might be a very long-term game,” the analysts wrote.

Tiffany and Burberry appear less attractive targets than the family-owned firms, the analysts said.

Tiffany has too much exposure in less lucrative silver jewelry, while Burberry is dependent on low-margin apparel. Coach, with a $14 billion market capitalization, appears to be too big now to be attractive, the analysts said.

Europe’s leading four firms — Richemont, LVMH Moët Hennessey Louis Vuitton, PPR and Swatch — appear likely to continue streamlining their portfolios instead of diving back into the M&A arena that defined the go-for-broke acquisitiveness of the late Nineties, the analysts said.

After all, LVMH still has to deal with turning around houses like Givenchy and Donna Karan, while PPR’s Gucci Group division is struggling to get its Yves Saint Laurent business out of the red.

Other factors that may preclude a buying rush include few good targets and prices that are sure to be restrictively high — even if major firms are flush with cash, thanks to record profits in the last few years.

This story first appeared in the March 20, 2006 issue of WWD. Subscribe Today.

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