As Bernard Arnault prepares to present LVMH’s annual earnings, the conglomerate is facing shareholder dissatisfaction due to its diverse range of businesses. Despite housing luxury giants like Louis Vuitton and Dior, LVMH’s conglomerate structure is seen as a disadvantage, reflected in its lower valuation compared to peers like Hermes.
LVMH’s conglomerate discount is evident in its lower valuation, trading at about 16 times this year’s estimated earnings before interest and tax, whereas Hermes trades at 34 times. The conglomerate encompasses fashion, watches, jewelry, cosmetics, wines, spirits, duty-free retail, and hospitality.
Analysts suggest that breaking up LVMH could unlock significant value for investors. A potential split could focus on separating Louis Vuitton and Dior, bringing their valuation closer to that of Hermes. This move could make these brands worth as much as the entire LVMH group, currently valued at approximately €360 billion.
While luxury brands typically don’t engage in “buy one, get one free” deals, LVMH investors seem to be getting just that. The conglomerate’s structure includes additional brands like Loewe, Fendi, Celine, Sephora, Tiffany, Bulgari, and more.
The discussion around potentially dismantling LVMH is not only driven by valuation but also by the looming succession challenge. Bernard Arnault, the founder and CEO, turns 75 in March, and all five of his children hold senior roles within the business. The issue of who will succeed him and how the responsibilities will be divided among his children poses a significant challenge.
While breaking up LVMH might not be a perfect solution, it could address concerns about succession and potentially enhance shareholder value. The conglomerate structure might be reorganized into separate businesses, each supported by its central functions.
However, the decision to split LVMH ultimately rests with Bernard Arnault, who has taken steps to keep the empire together, raising the age limit for his roles and consolidating family control. Nevertheless, the ongoing conglomerate discount and discussions around potential mergers or acquisitions could keep the conversation alive, especially as the succession decision draws nearer.
In conclusion, whether LVMH is more valuable as a conglomerate or split into separate entities is a topic that investors and analysts believe deserves consideration.
