- LVMH to Gain Control of Dior After $13 Billion Arnault Deal
French billionaire Bernard Arnault moved to consolidate control over Christian Dior for about 12.1 billion euros ($13.2 billion), folding the fashion house’s operations into the LVMH luxury empire in one of his biggest transactions.
The deal unites ownership of one of the most iconic fashion brands under one roof for the first time in decades, valuing Paris-based Christian Dior SE at 260 euros a share, according to a statement Tuesday. That’s 15 percent above the Monday closing price of Dior, which Arnault’s family already controls with a 74 percent stake.
The two-part transaction, which comes amid a China-led revival in the luxury-goods industry’s fortunes, simplifies a complicated ownership structure and crowns the career of the biggest consolidator in the business. Arnault, who has a net worth of $46.3 billion, took control of the parent companies of Dior and Louis Vuitton in the 1980s and later added brands ranging from fashion label Fendi to jeweler Bulgari and suitcase maker Rimowa.
In the latest deal, LVMH is taking over a fashion house whose voluminous “New Look” helped revive French haute couture in the postwar years and whose designers have ranged from Pierre Cardin to John Galliano, for 6.5 billion euros. LVMH, 47 percent controlled by the Arnault family, already owns Dior perfumes and beauty thanks to a 1960s-era transaction to raise capital for the then-troubled fashion brand.
“Reuniting Christian Dior Couture and Christian Dior Parfums, so one brand under one leadership, has to be a good thing for LVMH shareholders,” Stephen Mitchell, head of strategy for global equities at Jupiter Asset Management, said in a Bloomberg Radio interview. “It does clean up the corporate structure.”
LVMH rose as much as 3.4 percent in early trading in Paris, while Dior gained as much as 13 percent.
Dior investors can choose payment in cash or stock of Hermes International, using shares in the rival Paris-based luxury company that the Arnault family received in 2014 after a controversial effort by LVMH to build a stake. The boards of Christian Dior and LVMH are unanimously in favor of the deals, and have appointed independent experts to review their terms, according to the statement.
Swapping the Hermes stock for Dior shares helps the Arnault family cash out of a profitable investment without paying taxes on a sale. LVMH surprised its rival in October 2010 by announcing it held 17.1 percent of the company. The move led the Hermes founding family to file a lawsuit and to form a holding company to protect its ownership. LVMH in 2014 ended the drama, distributing the shares to investors. Hermes shares have risen about 350 percent since the end of 2008, the year in which LVMH began buying derivatives on the stock.
“This is a good acquisition for LVMH in our view, given the strong brand of Christian Dior,” analysts at Barclays said in a note, adding that it’s a “good use of its balance sheet.”
Hermes was down as much as 6.2 percent in early trading. The transaction means millions of the LVMH rival’s shares that have been held by the Arnault family could soon hit the market. Investors will no longer see Hermes as a possible takeover target for Arnault now that he’s paring its stake, Bloomberg Intelligence analyst Deborah Aitken said.
LVMH, whose full name is LVMH Moet Hennessy Louis Vuitton SE, is paying about 15.6 times earnings before interest, tax, depreciation and amortization over the past year for Christian Dior Couture, which it will acquire for 6.5 billion euros under the second part of the plan announced Tuesday.
Dior, whose look has been refreshed in recent decades by the likes of Galliano, Raf Simons and Hedi Slimane, already works closely with LVMH. The fashion house’s watches, for example, use movements made by LVMH’s Zenith brand, and Arnault said cooperation would increase after the deals.
Bringing the two companies under the same umbrella will ease Dior’s access to financing for stores and marketing as well as making it easier to move talent between the perfume and fashion arms, Arnault said.
“This is an operation that shows our confidence in the French economy as well as in LVMH going forward,” Arnault said at a press conference. “It will allow us to increase the synergies that already exist between LVMH and Christian Dior Couture.”
Oil Prices Recover Slightly Amidst Demand Concerns in U.S. and China
Oil Prices Continue Slide as Market Skepticism Grows Over OPEC+ Cuts
Global oil markets witnessed a continued decline on Wednesday as investors assessed the impact of extended OPEC+ cuts against a backdrop of diminishing demand prospects in China.
Brent crude oil, the international benchmark for Nigerian crude oil, declined by 63 cents to $76.57 a barrel while U.S. WTI crude oil lost 58 cents to $71.74 a barrel.
Last week, the Organization of the Petroleum Exporting Countries and its allies, collectively known as OPEC+, agreed to maintain voluntary output cuts of approximately 2.2 million barrels per day through the first quarter of 2024.
Despite this effort to tighten supply, market sentiment remains unresponsive.
“The decision to further reduce output from January failed to stimulate the market, and the recent, seemingly coordinated, assurances from Saudi Arabia and Russia to extend the constraints beyond 1Q 2024 or even deepen the cuts if needed have also fallen to deaf ears,” noted PVM analyst Tamas Varga.
Adding to the unease, Saudi Arabia’s decision to cut its official selling price (OSP) for flagship Arab Light to Asia in January for the first time in seven months raises concerns about the struggling demand for oil.
Amid the market turmoil, concerns over China’s economic health cast a shadow, potentially limiting fuel demand in the world’s second-largest oil consumer.
Moody’s recent decision to lower China’s A1 rating outlook from stable to negative further contributes to the apprehension.
Analysts will closely watch China’s preliminary trade data, including crude oil import figures, set to be released on Thursday.
The outcome will provide insights into the trajectory of China’s refinery runs, with expectations leaning towards a decline in November.
Russian President Vladimir Putin’s diplomatic visit to the United Arab Emirates and Saudi Arabia has added an extra layer of complexity to the oil market dynamics.
Discussions centered around the cooperation between Russia, the UAE, and OPEC+ in major oil and gas projects, highlighting the intricate geopolitical factors influencing oil prices.
U.S. Crude Production Hits Another Record, Posing Challenges for OPEC
U.S. crude oil production reached a new record in September, surging by 224,000 barrels per day to 13.24 million barrels per day.
The U.S. Energy Information Administration reported a consecutive monthly increase, adding 342,000 barrels per day over the previous three months, marking an annualized growth rate of 11%.
The surge in domestic production has led to a buildup of crude inventories and a softening of prices, challenging OPEC⁺ efforts to stabilize the market.
Despite a decrease in the number of active drilling rigs over the past year, U.S. production continues to rise.
This growth is attributed to enhanced drilling efficiency, with producers focusing on promising sites and drilling longer horizontal well sections to maximize contact with oil-bearing rock.
While OPEC⁺ production cuts have stabilized prices at relatively high levels, U.S. producers are benefiting from this stability.
The current strategy seems to embrace non-OPEC non-shale (NONS) producers, similar to how North Sea producers did in the 1980s.
Saudi Arabia, along with its OPEC⁺ partners, is resuming its role as a swing producer, balancing the market by adjusting its output.
Despite OPEC’s inability to formally collaborate with U.S. shale producers due to antitrust laws, efforts are made to include other NONS producers like Brazil in the coordination system.
This outreach aligns with the historical pattern of embracing rival producers to maintain control over a significant share of global production.
In contrast, U.S. gas production hit a seasonal record high in September, reaching 3,126 billion cubic feet.
However, unlike crude, there are signs that gas production growth is slowing due to very low prices and the absence of a swing producer.
Gas production increased by only 1.8% in September 2023 compared to the same month the previous year.
While the gas market is in the process of rebalancing, excess inventories may persist, keeping prices low.
The impact of a strengthening El Niño in the central and eastern Pacific Ocean could further influence temperatures and reduce nationwide heating demand, impacting gas prices in the coming months.
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