Kering Buys 30% of Valentino, Option to Buy the Remainder – WWD

PARIS — Kering said on Thursday it has bought a 30 percent stake in Valentino for 1.7 billion euros in cash as part of a broader strategic partnership with Qatari investment fund Mayhoola, as it seeks to chart a course for growth during a transitional year for its star brand Gucci.

The acquisition, which came a week after a major management reshuffle, overshadowed a weak performance in the second quarter that saw Gucci miss market expectations as it adapts to a new corporate and creative leadership following the exit of longtime chief executive officer Marco Bizzarri and creative director Alessandro Michele.

Kering has an option to buy 100 percent of Valentino’s capital by 2028, while Mayhoola could become a shareholder in Kering, the brands said in a joint statement released after the Paris market close. The initial transaction for the French luxury group to buy its 30 percent Valentino stake is expected to close by the end of 2023, subject to clearance by the relevant competition authorities.

François-Henri Pinault, chairman and CEO of Kering, said Valentino would benefit from synergies, while Kering and Mayhoola will jointly explore further opportunities aligned with their respective strategies. 

“It’s too early, of course, to say what would be those opportunities, but for me, it has to broaden our scope of looking at the luxury markets in the future,” he said. “Over the past 10 years, we’ve made great progress in becoming an integrated luxury group. The transformation, however, is not yet complete.”

Pinault said Valentino fills a gap in Kering’s portfolio as the group targets wealthier customers with high-end products such as exotic leather goods and high jewelry, after tripling in size over the last decade. He said Valentino CEO Jacopo Venturini, who joined the label in 2020 from Gucci, would remain in place. 

“Valentino is a house that I’ve always admired. It’s an amazing Italian name rooted in haute couture and known all around the world, so we’re very proud to be able to support the brand elevation strategy successfully implemented in the past few years,” Pinault said.

The executive made no specific mention of Valentino creative director Pierpaolo Piccioli. 

Rachid Mohamed Rachid, CEO of Mayhoola and chairman of Valentino, said it looked forward to joining forces with Kering, whose brands also include Saint Laurent, Bottega Veneta and Balenciaga. 

“Under our stewardship, Valentino has strengthened its foundations as a highly desirable luxury brand and we will keep reinforcing the brand in the next chapter with Kering. We look forward to our partnership with Kering in Valentino and also in other potential opportunities to explore investments together,” he said in the statement.

Valentino has 211 directly operated stores in more than 25 countries and posted revenues of 1.4 billion euros and recurring earnings before interest, taxes, depreciation and amortization of 350 million euros in 2022, according to the statement.

“The potential of this brand is, in our opinion, quite significant for the next years to come,” Pinault said. “The discussion we had with the management of Valentino during the process of the acquisition reinforced our confidence in what we could bring to Valentino in the coming years to not only continue to develop strongly the brand but also to reinforce significantly its profitability.” 

Mayhoola first took control of the brand, then under the Valentino Fashion Group, in 2012. But there has long been speculation that the Middle Eastern group was looking to sell Valentino, with Kering consistently mentioned as a possible buyer.

Giancarlo Giammetti, the longtime business partner of founder Valentino Garavani, said he was “thrilled” by Thursday’s news. 

“I have an immense admiration for the work of the Pinault family in the luxury world, with the extraordinary brands they own,” he said.

“We have also been extremely satisfied for how Mayhoola did turn the brand that Mr. Valentino and I founded in 1960 into what it is today,” Giammetti added. “The collaboration between Kering and Valentino holds great potential, and I look forward to seeing how it unfolds in the future.”

A market source dismissed the idea, rumored in the past, that Mayhoola would ultimately divest from its luxury and fashion investments, which also include Balmain and Pal Zileri. “On the contrary, this deal proves its commitment and is in line with the fund’s long-term strategy, since it means Mayhoola could be investing in Kering in time,” the source said.

Jean-Marc Duplaix, Kering’s deputy CEO in charge of operations and finance, clarified that Balmain was not part of the deal “and it’s not contemplated at this stage that there will be something around Balmain going forward.”

A Milan-based financial source said the agreement with Kering “is in the sign of continuity, underscoring the goal to further grow Valentino over the next years, under the lead of Venturini.”

The deal was touted as “a great operation, reflecting an increasing need for companies to bulk up and join forces.”

Kering has been under pressure to make a transformational acquisition that would put it on a more equal footing with rival LVMH Moët Hennessy Louis Vuitton and make it less reliant on Gucci, which accounted for 67 percent of the group’s operating profit last year. 

Activist investment firm Bluebell Capital Partners, which was recently reported to have a stake in Kering, had been touting a potential merger with Compagnie Financière Richemont, according to a source with knowledge of the matter, who asked not to be named for confidentiality reasons.

Johann Rupert, Richemont’s controlling shareholder, previously quashed speculation of a combination with Kering. “Everybody urged us to do that a year ago, and two years ago. And we said no,” Rupert said in May.

But after years of failed acquisitions, Kering is finally back on the M&A scene.

For me, all the options [for a CEO of Gucci] are open. The CEOs in our industry that are already experienced at that size are very, very few, so it’s also a good reason to open to the external world.”

François-Henri Pinault, Kering CEO

Signaling its ambitions in beauty, the French group last month purchased high-end niche fragrance house Creed in a deal reportedly valued at 3.5 billion euros. Pinault said the brand had revenues of around 250 million euros in 2022, with a very high EBITDA margin. 

“We have strong growth opportunities for Creed,” he said, noting the brand has very limited exposure to the Asia Pacific region, little to no presence in travel retail, and room to expand its women’s lines.

In turn, Creed’s existing network will allow Kering to build the distribution capabilities for its fledgling beauty division. 

The Creed deal came after Kering was in the chase to acquire Tom Ford International, which eventually was bought by that company’s existing beauty licensee, The Estée Lauder Cos. Inc., for $2.3 billion.

On Thursday, Pinault emphasized that in addition to growing its brand portfolio, Kering was fully committed to turning around Gucci, thanks to the new leadership structure unveiled last week.

As part of the reorganization, group managing director Jean-François Palus will take over as president and CEO of Gucci for a transitional period. WWD was the first to report Bizzarri’s departure. His last day at Gucci will be on Sept. 23, after the brand’s spring 2024 show in Milan, the first by new creative director Sabato De Sarno.

Francesca Bellettini, president and CEO of Yves Saint Laurent since 2013, was appointed Kering’s deputy CEO, in charge of brand development. All brand CEOs will report to her, and she will be responsible for steering the group houses in their next stages of growth.

“Saint Laurent has been the most consistent growth story in the group,” said Pinault, adding that Bellettini would remain in charge of that brand. 

Duplaix was promoted from chief financial officer, a role he has held since 2012, to deputy CEO. Meanwhile, former Chanel global CEO Maureen Chiquet joined the Kering board.

Pinault said he opted for a seasoned insider at the helm of Gucci in order not to waste time.

“The top priority is to restore the momentum of the top line of Gucci going forward through the relaunch of the aesthetic of Gucci,” he said. “I wanted to be very efficient, very pragmatic. I don’t have years in front of me, I want to put Gucci back on track.” 

De Sarno, who has been operational since May, has visited China and is currently in the U.S., he reported. Meanwhile, Palus and Bellettini are ensuring the new look to be unveiled in September will be amplified immediately across all product lines, with the aim of boosting sales before the new products arrive in stores.

Kering will begin the search for a permanent Gucci CEO in September or October, and is open to candidates from outside the luxury sector, Pinault said.

“For me, all the options are open,” he said. “The CEOs in our industry that are already experienced at that size are very, very few, so it’s also a good reason to open to the external world.”

Among the areas for improvement he identified were product quality and supply chain agility. Nonetheless, Pinault was confident that Gucci will reach its medium-term revenue target of 15 billion euros, versus 10.5 billion euros in 2022. 

Meanwhile, Kering’s results continue to lag its peers. The group said net profit fell 10 percent to 1.8 billion euros in the first half of 2023 versus the same period last year, as solid growth in Asia was offset by a drop in U.S. sales.

Sales at Gucci totaled 2.51 billion euros in the three months to June 30, up 1 percent on a like-for-like basis, in line with the first quarter. That was below a consensus of analyst estimates, which called for a 4 percent increase in comparable sales at the maker of Jackie 1961 handbags and horsebit loafers, according to a consensus compiled by Bloomberg.

Organic sales at Saint Laurent were up 7 percent in the second quarter, Bottega Veneta gained 3 percent, and the “other houses” division – which groups brands including Balenciaga, Alexander McQueen and Boucheron – posted a 1 percent drop. 

By comparison, organic sales at LVMH’s key fashion and leather goods division rose 21 percent year-over-year in the second quarter, reflecting the resilience of its marquee brands Louis Vuitton and Dior. 

Kering said retail sales, including e-commerce, were down 23 percent in North America, while the Asia Pacific region gained 22 percent and Japan 26 percent. Western Europe was up 4 percent, and the rest of the world saw a 5 percent progression.

Group revenues in the three months to June 30 rose 2 percent year-on-year to 10.14 billion euros, representing an increase of 2 percent in like-for-like terms. This compared with a 1 percent organic sales increase in the first quarter, and was below the consensus forecast for a 4 percent sales rise in the second quarter.

Recurring operating income fell 3 percent to 2.74 billion euros, yielding an operating margin of 27 percent, down from 28.4 percent in the same period last year.

The Kering results come on the heels of figures from Richemont showing sales at constant exchange rates rose 19 percent in the April-to-June period, fueled by a strong rebound among Chinese tourists and locals. 

Moncler said comparable sales were up 26 percent in the second quarter, mainly thanks to an improvement in Asia, while revenues at LVMH rose 17 percent in organic terms during the period. Hermès International is the next big luxury player scheduled to report second-quarter results, on Friday.

Rothschild & Co. acted as adviser of Mayhoola and Centerview Partners advised Kering. 

— With contributions from Luisa Zargani