Can Kering (Gucci) merge with the Swiss giant of Luxury Richemont (Cartier)?The Stock Exchange Council of the Day

While LVMH gradually weaves his canvas, with in particular the acquisition of the jeweler Tiffany, Kering is expected at the turn on the front of acquisitions.Especially since the French luxury giant led by François-Henri Pinault is deemed insufficiently diversified.Investors believe that it is “still depends too much on the Italian brand Gucci, which still generates most of the group's turnover and margins”, underlines Catherine Garrigues, director of the Actions Strategy Europe Conviction at Allianz GlobalInvestors.

In November, rumors of rapprochement from Kering with Richemont - a real market serpent of the markets - resurfaced, thanks to the emergence of activist funds Third Point and craftsman Partners to the capital of the Swiss luxury giant.According to BFM, these funds are trying to blow up the locks of its governance, in fine view of promoting a rapprochement with Kering.Eager to calm the game, the president of Richemont recently declared that he was not interested in a sale or a merger ... However, with almost 10% of the capital, Johann Rupert holds around 50% of the votes: a hostile opais therefore out of the question.

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Kering would have approached Richemont in early 2021 for a merger, according to BFM, but would have encountered the hostility of Johann Rupert to the project.“The market talks about this possible rapprochement for a long time.The two companies are significant, and have family shareholding, which has kept control.Hostile operations are difficult in the context of family shareholding.In view of their size, we can therefore think that a rapprochement between the two would rather go through a fusion between equals.But this kind of fusion is complex in cases of family shareholding, because families must agree, "said Catherine Garrigues.

On paper, Kering would have the means to buy Richemont.Its market capitalization is 87 billion euros, against 75 billion for the latter.And Kering has almost no net financial debt.“The luxury sector is concentrated around a few large actors, who multiply the acquisitions and grow by buying family companies.In addition, these companies are full of cash.It is therefore logical that operations continue, including for Kering who has built in luxury thanks to business buyouts (Gucci, Bottega Veneta, etc.) ", notes Catherine Garrigues.

A possible combination Kering - Richemont could do during the LVMH - Tiffany rapprochement, which combines a specialist in Soft Luxury (leather goods and designer clothing) and a flagship actor from Hard Luxury (jewelry, watches)?Indeed, Kering is an actor of the Soft Luxury, with Gucci as the main brand, while Richemont is a giant of the Hard Luxury, very present in watches and jewelry, with the flagship brand Cartier.

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“The hard Luxury has gone through difficulties in recent years, but has resumed its superb.Watchmaking has returned.There is a real craze for millennials for watches (Cartier has seen its income increase by 41% in two years, since 2019).The rapprochement between Soft Luxury and Hard Luxury should therefore continue ”, judges Catherine Garrigues.In our opinion, a rapprochement by exchange of shares between Kering and Richemont would create a new European luxury giant of more than 150 billion euros in market capitalization, a weight comparable to that of Hermès.A merger that would also reduce the gap vis-à-vis LVMH, which, with a market capitalization of almost 350 billion euros, distance from afar the group led by François-Henri Pinault, currently.

For the time being, Kering is only paid 22 times the expected profits on average by analysts for 2022, against 30 times for LVMH.A significant difference, but partly justified by a higher risk level for Kering (still too dependent on Gucci, while LVMH is extremely diverse) and the premium to the leader from which the world number 1 of luxury benefits by Bernard Arnault benefits.

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