LVMH to pick up stake in Gitanjali Gems’ new arm

Gitanjali Gems Ltd. | Diamond & Jewellery | Consumer Durables | BSE: 532715 | NSE: GITANJALI

11 Feb 2011 Evaluate

The world’s largest luxury conglomerate, LVMH, through its private equity arm L Capital, is set to acquire a significant minority stake in Gitanjali Gems’ proposed subsidiary that will control its branded jewellery and retail businesses. The deal worth $100-125 million is aimed at bringing the world’s best know-how, expand aggressively in the domestic market and take Gitanjali Gems to global scale. With India and China accounting for 60% of the wealth of the region, the French multinational would be happy to get a larger footprint here.

L Capital will pick up stake using money from its $500-million L Capital Asia Fund, which was raised in 2010. While LVMH focuses exclusively on high-end luxury goods — with icons such as Louis Vuitton and Dior in its portfolio — L Capital has been investing in aspirational as well as luxury goods makers all over the world, such as Gant and Princess Yachts. Its Asia arm, registered in the Cayman Islands, has picked up stake in one Hong Kong-based and two Singaporean watch and retail companies in the past one year.

Gitanjali Gems has started restructuring its business and aggregating its 32 subsidiaries under four divisions — diamond, infratech, branded jewellery and retail. One key reason to route the investment through a new subsidiary is to avoid an open offer. Under the takeover code, in case the acquirer buys more than a 15% stake in a listed firm, it has to buy an additional 20% from the open market, also called an open offer. Second, the transaction in the listed firm would also have resulted in the dilution of the promoters’ stake to below 50%. The promoters, who own 54% in the company, are not willing to dilute at the current market value.