LONDON — Burberry shares rose Tuesday following media speculation that a potential bidder could be stalking the British company.
This story first appeared in the March 9, 2016 issue of WWD. Subscribe Today.
Shares were up 6.1 percent to 14.55 pounds, or $20.66, in midday trading following a report in the Financial Times on Tuesday that an unidentified shareholder had upped its stake in Burberry to more than 5 percent. The shares slipped back slightly by the end of the day to close up 4.6 percent at 14.35 pounds, or $20.32.
HSBC acts for the shareholder, but has so far declined to reveal its identity to Burberry. Earlier this month, the mystery shareholder reduced its stake to less than 5 percent, or 12,917,297 shares.
The FT reported that, in the wake of the disclosure last month, Burberry had sought guidance from its external financial advisers about defending itself against any potential bids.
Burberry declined to comment.
The company will always be appealing as a takeover target because there are no family shareholders, and it does not belong to a big conglomerate. Burberry’s top 10 shareholders have stakes ranging from around 3 percent to just over 6 percent. As of October, the The Capital Group Companies Inc. had a 6.04 percent stake in Burberry, while Blackrock held about 3.84 percent as of November. In February, Baillie Gifford told the London Stock Exchange its holding fell below the 5 percent threshold.
The share price has also fallen nearly 25 percent in the past year as sales growth has slowed amid an uncertain macroeconomic backdrop, and the erosion of traditionally high-margin markets such as Hong Kong and Macau. The company’s market capitalization is currently 6.30 billion pounds, or $8.95 billion, at current exchange.
Over the years, LVMH Moët Hennessy Louis Vuitton and Coach have repeatedly been mooted as possible bidders for Burberry.
On Tuesday, a spokesman for LVMH declined to comment although industry sources familiar with the French conglomerate said Burberry “does not fit the LVMH acquisition profile.”
In response to the latest Burberry report, a spokeswoman for Coach said the company “has a longstanding policy of not commenting on rumors and speculation.”
One industry source suggested that bankers were trying to talk up the Burberry share price, while Luca Solca, managing director at Exane BNP Paribas, speculated that the shareholder in question may simply be an investor keen on a possible rebound.
Solca added that if the mystery shareholder is indeed a potential bidder, it would most likely be a sovereign fund or private equity. “I struggle to see a European industry buyer behind this,” he said.
Burberry isn’t the only luxury brand that’s struggling to grow amid challenges that include shifting tourism patterns due to terrorist threats and currency fluctuations; the long-term effects of a clampdown on gifting in China; unseasonably warm weather, and pressure on profit margins.
Last month, François-Henri Pinault indicated that acquisitions at Kering would remain on ice and future investments will be conditional on the existing brands improving free cash flow and same-store sales.
“The growth of the market in the short-term will often be less rapid than at the beginning of the decade,” the executive said during a strategy presentation in February.
“We are present today in the most important cities and locations in the world. Our priority is to extract more value from them. We will do this in particular by continuing to increase our same-store sales, and this will have a direct impact on the growth of our margins.”