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 The world's largest luxury goods maker is considering selling its wine and spirits unit, the Moët Hennessy in its moniker, to Diageo plc, according to two British papers.
Or perhaps not. "No such negotiations are taking place," Paris-based LVMH said in a statement Wednesday. That might be unequivocal, if anyone had actually suggested the two companies were currently in talks. They didn't. Diageo is tentatively planning a bid that would value the maker of Moët & Chandon, Krug and Dom Pérignon champagnes at about €12 billion ($15.6 billion) and has tapped Goldman Sachs Group Inc. (NYSE:GS) for advice, said the Daily Telegraph. LVMH has let it be known, in past informal talks, that it is open to the idea of selling the unit, said the Financial Times. Lazard is reported to be its adviser. There is little doubt that Diageo would be interested in talking about a deal. It owns 34% of the unit and shares numerous distribution partnerships. It also has a balance sheet strong enough to allow it to fund a cash deal. The more vexing question is: What is in a sale for LVMH? The drinks unit, which accounts for about 18% of LVMH sales, is appreciated by investors and analysts for the stability that it provides the group's more fickle fashion business. It is not certain that a deal, even at a good price, would be well received. And then there is the question of what to do with the cash. Presumably it would be spent on a fashion operation. But which one? There are only a handful of businesses that would merit raising so much cash, namely Hermes International SCA, Bulgari SpA and PPR SA's Gucci Group. Hermes and Bulgari are both family controlled and despite the inevitable rumors, are no thought to be on the market. PPR meanwhile has been narrowing its business to focus on luxury, making a sale unlikely. It seems unlikely that LVMH would sell without being in a position to buy. Whether or not LVMH is in those talks remains an open question. - Paul Whitfield
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