Goldman, Left Holding Bag on Burberry Trade, Makes Killing

(Bloomberg) -- A deal that went south may end up becoming one of Goldman Sachs Group Inc.’s most profitable trades this year.

Goldman, initially stuck with Burberry Group Plc shares after helping billionaire Albert Frere offload his 6.6 percent stake in the London-based luxury company last month, has made about $30 million from selling its holding after shares in the London-based luxury company soared, according to people with knowledge of the matter.

Representatives for Goldman declined to comment.

That sale is on track to be one of the most lucrative for the Wall Street bank’s equity capital markets team in Europe this year, the people said, declining to be identified as the bank’s trading positions are confidential.

The bank helped Frere’s Groupe Bruxelles Lambert SA sell its 6.6 percent stake in Burberry for about 498 million pounds ($673 million) through a private placement in May, and acquired some of the shares itself to help facilitate the deal. At that time, Goldman saw the value of its holding slump as news of Frere’s exit -- little more than a year after disclosing his initial investment -- prompted concern about the firm’s turnaround strategy. Shares of Burberry have gained 22 percent since the May 9 disclosure of the sale.

Clients’ Deals

The investment bank had bought the shares at a discount of more than 4 percent to the May 8 closing price, people familiar with the matter had said. In a block trade, banks offer clients a chance to unload a large stake all at once, and typically make money by bidding on shares at a discount to the current price and selling them for slightly more. The discount helps pays for the risk that the intermediary takes while locating new buyers.

Burberry shares have been rebounding as investors buy into Chief Executive Officer Marco Gobbetti’s turnaround strategy, which is built around giving the trenchcoat maker a more exclusive image and expanding its lineup of handbags. The CEO fleshed out his plans in March by naming Italian designer Riccardo Tisci, formerly of LVMH’s Givenchy, as chief creative officer. The company in May reported signs that the new approach is paying off, with strong sales of items like a $2,000 “Belt” handbag.

--With assistance from William Mathis.

To contact the reporter on this story: Ruth David in London at rdavid9@bloomberg.net

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net, Chitra Somayaji, Aaron Kirchfeld

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