Richemont to Pay SF3.08 Bln for Mannesmann Watch Unit (Update4)
By Catherine McLean
Zug, Switzerland, July 21 (Bloomberg) -- Cie Financiere Richemont AG, the maker of Cartier and Piaget watches, said it will buy Mannesmann AG's timepiece unit for 2.8 billion Swiss francs ($1.69 billion) as it bids to catch market leader Rolex.
Richemont will also buy Audemar Piguet's 40 percent stake in Jaeger-LeCoultre, one of Mannesmann's three watch brands, for 280 million francs. Richemont said the purchases won't raise its debt level and short-term dilution of earnings is ``insignificant.''
``It's a very expensive purchase but it's a perfect strategic fit,'' said Joerg Lorenz, who manages about 3.5 billion francs at Swissca Portfolio Management and has Richemont in his holdings.
The top luxury goods companies are boosting their prestige watch units as economic growth spurs demand for expensive, designer products. Richemont's rivals for Mannesmann's unit, LVMH Moet Hennessy Louis Vuitton SA, Swatch Group AG and Gucci Group NV, all acquired luxury watchmakers recently, pushing up prices of the remaining businesses in the $5 billion market.
``The price they paid is high,'' said Patrik Schwendimann, an analyst at Zuercher Kantonalbank, who rates Richemont shares an ``outperform.'' ``But you don't get such brands every day.''
Richemont shares rose 131 francs, or 2.9 percent, to 4,655 on the Swiss Exchange, while shares in Vodafone Airtouch Plc, which owns Mannesmann, slipped 6.25 pence, or 2 percent, to 300.75p. Swatch bearer shares rose 0.5 percent, LVMH fell 1 percent and Gucci slipped 1.7 percent.
Vodafone's Strategy
Mannesmann hired UBS Warburg in May to manage the sale of Les Manufactures Horlogeres SA as the German company divests units unrelated to telecommunications after being bought by Vodafone.
Vodafone would like to do more business with Richemont's owners.
Richemont and South Africa's Rembrandt Group Ltd. are both controlled by the family of Anton Rupert, who founded Rembrandt in 1945. Vodafone and Rembrandt holds stakes in Vodacom Group (Pty) Ltd., one of South Africa's two cellular phone service providers, and a spokesman for Vodafone said the company would be interested in increasing its stake if the opportunity ever arose.
However, Vodafone denied there was any connection between the purchase of the Mannesmann unit and the Vodacom stake.
Incorrect Arithmetic
``People draw the conclusion that it's partly to do with the South African business,'' said Terry Barwick, a spokesman for Vodafone. ``They've tied two and two together and got the wrong answer.''
Richemont, the No. 2 luxury goods company that also owns Montblanc pens, has been targeting acquisitions to strengthen the Vendome unit after selling its holding last year in Rothmans International, the No. 4 cigarette company, for a stake in British American Tobacco Plc.
Still, Richemont earned more from its tobacco holding last year than from the luxury goods business, which is weighing on profit. Vendome increased earnings by 38 percent to 357.8 million euros ($33.85 million) in 1999, while profit from companies in which Richemont holds stakes rose 2.3 percent to 424.8 million euros.
The acquisition will boost Richemont's stable of luxury-watch brands, which includes the Cartier, Piaget, Vacheron Constantin and Baume & Mercier brands. Its bid was given a boost when it joined up with Audemars Piguet last month.
Jaeger, IWC and Lange, all founded in the 19th century, posted sales of 372 million francs last year. IWC's watches have been worn by Film star Sean Connery and German Chancellor Gerhard Schroeder. Jaeger's trademark is the Reverso, a watch mounted on a steel carriage that can be flipped over to protect that face, which was created for English polo players.
High Prices
With the Mannesmann brands, Richemont now controls about 22 percent of the market for watches costing more than $1,500, behind Rolex, which has a 25 percent market share. Swatch has 15 percent market share, while LVMH has 9 percent and Gucci about 1 percent, according to UBS Warburg.
Analysts said the price is higher than anticipated. A lack of companies for sale and a flurry of acquisition activity pushed up the price for LMH to around eight times sales. In comparison, LVMH last September paid close to 3 times sales for TAG Heuer International SA, while analysts estimate Swatch shelled out about two-and-a-half times for Group Horloger Breguet.
``The price. . .was very high,'' said Pierre Tissot, an analyst at Lombard Odier & Cie, whose Richemont rating is under review. ``Given the fact that the brands are well managed it will be difficult to exploit synergies to dramatically increase returns.''
However, Richemont's will be able to exploit the brands through its large production and sales system, analysts said. Furthermore, the LMH watches, whose prices range from around 1,500 to 365,000 francs, have higher margins than other products.
The acquisition will be completed by the end of September. The Zug, Switzerland-based company was advised by Deutsche Bank and Lehman Brothers. |
