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Kering Holds Exploratory Talks on Deal for Moncler

Ed Hammond and Geraldine Amiel

(Bloomberg) -- Kering SA has held exploratory talks with Moncler SpA about a potential deal for the Italian skiwear maker, people with knowledge of the matter said.

Senior executives at Kering, the owner of Gucci and Saint Laurent, and Moncler have held preliminary discussions about a combination, according to the people, who asked not to be identified because the information is private. There’s no certainty the talks will lead to a transaction.

Any takeover would require Kering Chief Executive Officer Francois-Henri Pinault to win over Moncler’s Remo Ruffini, whose investment vehicle owns 22.5% of the company, which has a market value of about 11 billion euros ($12 billion).

Ruffini “maintains contacts and interacts with investors and other sector participants, including the Kering group, in order to explore strategic potential opportunities to further promote the successful development of Moncler,” the Italian company said in a statement Thursday. “At the moment, however, there is not any concrete hypothesis under consideration.”

A representative for Kering declined to comment.

Moncler surged as much as 12%, the biggest gain since the shares began trading about six years ago in Milan. Kering rose 1% in Paris, and other European luxury stocks gained.

Adding Moncler would help Kering keep pace with larger rival LVMH, which recently agreed to buy jeweler Tiffany & Co. for $16.2 billion in the biggest-ever luxury deal. The rivalry between LVMH Chairman Bernard Arnault and Kering’s controlling shareholder Francois Pinault -- Francois-Henri’s father -- has fueled the transformation of the industry over the past few decades, as the French companies raced to assemble vast portfolios of labels.

“LVMH’s Tiffany takeover is putting pressure on everyone,” Bernstein analyst Luca Solca said.

Gucci’s Profit

Kering’s offerings include Ulysse Nardin watches and Boucheron jewelry, as well as fashion labels such as Alexander McQueen and Bottega Veneta. The company has become increasingly dependent on Gucci, which provided more than three-quarters of its operating profit in the first half of the year. That’s putting pressure on Kering to diversify in order to hedge against the risk that demand for the Italian brand’s new looks could fade.

A deal for Moncler would give Kering a label whose growth has stood out over the past decade, even in a booming luxury sector. As bankers shuck suits, ties and overcoats in favor of more casual attire, its $2,000 puffy down jackets have moved beyond the ski slopes of St. Moritz to the conference rooms of the World Economic Forum in Davos. Moncler’s profit margins rival those of Hermes International.

The driving force behind Moncler is Ruffini, who bought the company in 2003 and transformed it from a failing French maker of functional but no-frills outdoor gear into one of the world’s hottest luxury brands. The CEO took the brand upmarket, opening boutiques in places ranging from Rodeo Drive in Beverly Hills to the Alpine hub of Chamonix. It has 49 stores in greater China, where consumers are driving the industry’s growth.

Shares of Moncler have roughly quadrupled since the company completed its initial public offering in late 2013. The stock has climbed about 48% this year.

The company said in October that sales for the first nine months of the year rose 12% at constant exchange rates, reassuring investors that Chinese consumers are still spending on fancy ski jackets despite the effects of anti-Beijing protests in Hong Kong that have hit sales in the key luxury hub.

Swimsuits, Sneakers

Longer term, Moncler has faced questions about where growth will come from if its fans tire of buying expensive coats. The company has added everything from swimsuits to sneakers, and Ruffini has launched collaborations with outside designers in a bid to broaden its appeal.

Ruffini has shown in the past that he’s willing to let go when the price is right. He was able to acquire Moncler by using proceeds from the sale of a brand that he founded, called New England, in 2000.

The Pinaults are no strangers to fighting tough takeover battles after going head-to-head with Arnault to win control of Gucci. But in recent years the company has walked away from deals when the price wasn’t right, leaving it with 2.5 billion euros in cash.

(Updates with Moncler statement in fourth paragraph)

--With assistance from Eric Pfanner, Daniele Lepido, Robert Williams, Albertina Torsoli, Dinesh Nair and Dan Liefgreen.

To contact the reporters on this story: Ed Hammond in New York at ehammond12@bloomberg.net;Geraldine Amiel in Paris at gamiel@bloomberg.net

To contact the editors responsible for this story: Liana Baker at lbaker75@bloomberg.net, ;Ben Scent at bscent@bloomberg.net, Eric Pfanner, Marthe Fourcade

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