Skip to main content

European Business LVMH increases investment in high-end travel market with $3.2-billion Belmond deal

Luxury goods maker LVMH has agreed to buy Belmond, the owner of hotels including Venice’s landmark Cipriani, for a total of $3.2 billion to raise its profile in upmarket hospitality.

LVMH, the firm behind fashion labels Louis Vuitton and Christian Dior, already has hotels including the Cheval Blanc in the prestigious Courchevel ski resort in the French Alps, as well as Bvlgari hotels.

The Belmond deal is LVMH’s largest since it spent 4.3 billion euros in 2011 to buy Bvlgari and 6.5 billion euros in 2017 to gain full control of Christian Dior.

Story continues below advertisement

It will have a limited impact of its debt and boost 2018 earnings per share, before synergies by just 0.1 per cent.

LVMH will “reach critical mass in the ultimate luxury hotel world with one single acquisition,” finance chief Jean-Jacques Guiony told analysts during a call.

“The priority is to develop and improve the profitability of these exceptional brands and nurture complementarity with the LVMH group brands,” he added.

The acquisition will give it properties including the only hotel within the Machu Picchu citadel in southern Peru, Hotel Splendido in Portofino on the Italian riviera and the Copacabana Palace in Rio de Janeiro, moving LVMH further into the fast-growing “experiential” high-end travel and hospitality sector.

The transaction follows a wave of deals in the luxury hotels sector, including AccorHotels’ purchase of FRHI Holdings, the parent of the Fairmont and Raffles hotels.

“While some investors may question the acquisition, which appears to lie outside LVMH group’s core operations, we believe it is consistent with its long-term strategy focused on offering the consumer a full spectrum of luxury experience,” Berenberg analysts said in a research note.

‘LUXURY EXPERIENCES’

Guiony said the deal reflected LVMH’s belief that “the future of luxury is in luxury goods and in luxury experiences.”

Story continues below advertisement

It also pushes LVMH further into new luxury services at a time of growing concern that Chinese demand for high-end fashion and handbags will start waning amid worries about the health of the world’s second-largest economy and potential damage from Wshington’s protracted trade spat with Beijing.

LVMH said it would pay $25 per Belmond share, a 40 per cent premium to Thursday’s closing price.

The deal, expected to close in the first half of 2019, values Belmond’s equity at $2.6 billion, and the group, including debt, at $3.2 billion.

Belmond posted earnings of $140 million before interest, taxes, depreciation and amortization (EBITDA) on revenue of $572 million in the 12 months to Sept. 30. Half of revenue comes from Europe and 20 per cent from North America.

At 1520 GMT, LVMH shares were down 0.9 per cent at 253.45 euros in a weak European stock market while Belmond shares jumped 40 per cent in New York to $24.74.

RBC Capital Markets analysts said the price of the deal – at 5.6 times recent sales and 22.9 times recent EBITDA – looked “optically high,” but added: “Belmond owns a unique portfolio of trophy real estate assets, that will allow LVMH to increase its exposure to experiential luxury.”

Story continues below advertisement

LVMH ended up paying a multiple of 19 times Belmond’s expected EBITDA for next year, according to Refinitiv data. Bigger hotel chains like Hilton and Marriott International trade on forward multiples of just over 12 times.

Belmond owns, partly owns or manages 46 luxury hotels, restaurants and train and river-cruise properties located in exotic and distinctive destinations worldwide.

Report an error
Tickers mentioned in this story
Unchecking box will stop auto data updates
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

Cannabis pro newsletter