LVMH readies jumbo bond for Dior acquisition

The Christian Dior fashion brand will be combined with the LVMH luxury goods empire as part of a €12 billion move.
The Christian Dior fashion brand will be combined with the LVMH luxury goods empire as part of a €12 billion move. PHOTO: AFP

LONDON (REUTERS) - LVMH has become the latest company to capitalise on a strong market backdrop and favourable funding costs, opting to pre-finance its €12 billion (S$18.4 billion) acquisition of Christian Dior Couture, according to International Financing Review.

LVMH announced last month that the acquisition - slated to close in the third quarter - would be financed with debt, leading investors to anticipate a speedy multi-billion takeout. Europe has become a hotbed for M&A debt financing over the last year with borrowers such as AB InBev and Verizon demonstrating the depth of demand for multi-tranche jumbo trades.

Supply has been further helped by the ECB's corporate purchase programme, which started last June, spurring demand for paper and bringing coupons to all-time lows.

LVMH hit the market on Tuesday for a €4.5 billion bond split into four tranches - an 18-month floater, a three-year fixed, a five-year fixed and a seven-year fixed. Each will be of benchmark size.

Despite initially increasing leverage on the back of the acquisition, analysts at CreditSights said LVMH will still have the strongest financial profile of Europe's retailers. S&P, the only agency that rates LVMH, said last month that its rating will remain at A+ stable.

Some investors warn, however, that the large deal size may affect performance in the secondary market. "I suppose the market is fairly hot and pricing looks attractive, although I would expect them to do €6.5 billion which may limit performance post issue," one investor said early in the marketing process.

The world's biggest luxury group by sales is also servicing a €6.5 billion vendor loan as a stop-gap measure to fund the acquisition. The Christian Dior fashion brand will be combined with the LVMH luxury goods empire as part of a €12 billion move to simplify owner French billionaire Bernard Arnault's business interests.

The Arnault family, which holds a 47 per cent stake in LVMH, will also offer to buy the 25.9 per cent of the Christian Dior holding company it does not already own for around €260 a share. BAML, Barclays, CA CIB, HSBC, JP Morgan and Natixis are active bookrunners on the trade.