Luxury powerhouses Kering LVMH have reasons not to buy Jimmy Choo
(Bloomberg Gadfly) -- Calling all shoeaholics. Jimmy Choo Plc, maker of the footwear beloved of Sex and the City's Carrie Bradshaw, is up for sale.
At first sight, this looks like the start of the long-vaunted consolidation in luxury goods. But this is more about the shifting priorities of the brand's majority shareholder, JAB Luxury GmbH, part of the investment arm of the billionaire Reimann family.
JAB built a high-end portfolio about five years ago through its Labelux subsidiary, picking up shoemaker Bally and leather jacket and boot company Belstaff.
But since its foray into fashion, it has developed more pedestrian tastes. It spent almost $30 billion over the past few years building a challenge to Nestle SA in the coffee sector, snapping up companies from Douwe Egberts maker D.E Master Blenders 1753 NV to Peet's Coffee & Tea Inc. Just a few weeks ago it agreed to acquire Panera Bread Co. for $7.2 billion.
There's only enough room for one addiction in the portfolio. The shoes have had to go. Choo's being jettisoned, along with Bally International AG.
The timing looks opportunistic. Jimmy Choo's share price has fluctuated since its October 2014 debut along with the rise and fall of Chinese luxury demand. The latest rebound was boosted by the slump in the pound, which has made its trademark stilettos cheaper for visitors to the U.K. There's also been help from a revival in investor appetite for high-end goods.
With a market capitalization of just under 700 million pounds ($897.5 million), John Guy, analyst at Mainfirst Bank, estimates that Choo will be looking for a value of about 1 billion pounds, or about 13 times 2018 earnings before interest, tax, depreciation and amortization.
Though that's not cheap, it might attract private equity groups, which are flush with cash and short of targets. It helps that the company's been in these hands before.
The case for a purchase by one of the big luxury groups is less clear cut. They certainly have plenty of firepower for M&A, and a deal would be easy for the likes of Kering or LVMH to digest. But both have priorities elsewhere -- the former has been offloading shoe assets, while the latter has shown little interest in mainstream brands lately, preferring niche businesses, such as suitcase maker Rimowa. It's also perhaps more interested in expanding in watches and jewelry.
Choo might fit in Cie Financiere Richemont SA's portfolio of soft luxury brands, but it's probably more focused on grappling with a difficult Swiss watch market. That leaves Coach Inc., which is building a stable of luxury names, and acquired shoe company Stuart Weitzman two years ago. But even it has its hands full, being among the suitors for Kate Spade & Co. It's not easy to find an obvious trade buyer.
So the luxury giants might take a word of advice from Carrie Bradshaw herself. She liked to keep her money exactly where she could see it -- hanging in her closet.
For the global powerhouses the equivalent would be keeping their M&A powder dry, so they could snap up what they really wanted when it became available, or valuations drifted down from their current elevated levels. Unless a private equity buyer with deep pockets steps in, Jimmy Choo might be left as high and dry as a stiletto desert sandal.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.
To contact the author of this story: Andrea Felsted in London at firstname.lastname@example.org.