LVMH offers to buy Christian Dior Couture for 6.5 billion euros

PARIS – LVMH Moët Hennessy Louis Vuitton is adding another mega-brand to its fashion and leather goods portfolio.

The French luxury conglomerate said on Tuesday it has made an offer to buy Christian Dior Couture for 6.5 billion euros, or $7.06 billion at current exchange rates, in a move that will make it the second-largest brand in its fashion division behind Louis Vuitton and ahead of Fendi.

In tandem, Groupe Arnault, the investment firm controlled by LVMH chairman and chief executive officer Bernard Arnault, will make an offer of up to 12 billion euros, or $13.04 billion, for the 25.9 percent stake in the Christian Dior Group that it does not currently control.

Presently, the Christian Dior Group includes Christian Dior Couture and LVMH. Christian Dior Couture encompasses the brand's apparel, accessory and jewelry businesses, while the perfume and cosmetics lines are exercised under the umbrella of LVMH.

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Christian Dior Spring 2017 Haute Couture
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Christian Dior Spring 2017 Haute Couture

Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

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Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Christian Dior Haute Couture Spring/Summer 2017

 (Photo by Estrop/Getty Images)

Designer Maria Grazia Chiuri walks the runway following the Christian Dior Haute Couture Spring/Summer 2017 collection. 

(Photo by Estrop/Getty Images)

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"We are reuniting the two houses, which will allow for even greater synergies and a continued growth in the potential of this house," Arnault told a hastily convened press conference at LVMH's headquarters on Avenue Montaigne.

He noted the deal will simplify the structure of LVMH and give the Arnault family holding a greater stake in the luxury behemoth, the parent company of brands including Sephora, Bulgari, Guerlain and Moët & Chandon.

"It's an investment that shows our confidence both in the French economy and in the potential of the LVMH group internally," said Arnault.

The timing of the operation reflects both the strong performance of Dior and favorable market conditions, with historically high share prices and low interest rates allowing LVMH to offer its shareholders a good deal and borrow the full amount of the buying price.

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Dior's revenues have doubled in the last five years to around 2 billion euros, or $2.2 billion at average exchange rates, in the 12 months ending March 31. Its earnings before interest, taxes, depreciation and amortization (EBITDA) totaled 418 million euros, or $459 million, with the EBITDA margin rising above 20 percent of sales for the first time.

The simplified public offer will consist of two-thirds cash and one-third shares in Hermès International. If fully subscribed, it will signify Groupe Arnault divesting itself of all its shares in Hermès, putting to bed any lingering speculation that Arnault was plotting an eventual takeover of the rival luxury brand.

Groupe Arnault owns 8 percent of Hermès International's capital, worth around 4 billion euros, or $4.3 billion.

The deal values each Christian Dior Group share at 260 euros, or $282.85. This represents a premium of 14.7 percent over Monday's closing share price, and of 32.8 percent over the six-month share price average.

Christian Dior Couture's enterprise value of 6.5 billion euros is equivalent to 15.6 times its EBITDA, a ratio which Jean-Jacques Guiony, chief financial officer of LVMH, said was in line with recent luxury sector acquisitions.

Shares in LVMH were up 4.2 percent to 223.80 euros, or $243.45, shortly after midday on Tuesday, while Hermès International was down 4.1 percent at 442.85 euros, or $481.73. Shares in Christian Dior SE jumped 12 percent to 254.05 euros, or $276.38.

The transactions, which are subject to approval by regulatory authorities, are expected to go through in the second half of the year.

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