The Deal

THE DEAL JPMorgan Investment Banking Competition Anirban Ray | Sumit Thawrani | Akash Gehani MDI Gurgaon LVMH BVLGARI

Agenda ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Luxury Sector | Overview ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Characterized by their cyclical nature and structurally higher growth profile than the world economy Profitability Across Key Selected Luxury Product Categories Luxury Goods Sales Growth vs. OECD GDP Growth Source: Merrill Lynch Equity Research & The Economist Intelligence Unit Gross Margins (%) Operating Margins (%) Leather Goods & Shoes 35%-80% 20%-50% Ready to wear 50%-65% 5%-20% Cognac & Champagne 30%-40% 25%-35% Jewellery & Watches 55%-70% 15%-20% Perfumes & Cosmetics 55%-70% 15%-20% Writing Instruments & Lighters 15%-35% 5%-12% Tableware 10%-50% 0%-10%

Growth Potential | Geographical Perspective ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Why should LVMH acquire Bulgari? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

Bulgari Product Segments | Projected Revenue Growth ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

DCF Valuation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Bulgari DCF Valuation Present Value of Cash Flows 887 Present Value of Terminal Value 1596 Firm Value 2483 - Net Debt/(Cash) 141 Equity Value 2342 Equity Value per Share (€) 7.82

Cost of Acquisition To determine the feasible acquisition price to LVMH, Bulgari has been valued on the basis of following three models Discounted Cash Flow ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Trading Multiples Transaction Multiples ,[object Object],[object Object],[object Object],Based on this, range for the transaction share price can be from € 7.38 to € 8.24 Current Bulgari share price**: € 4.53 Acquisition premium (to 6 months): 20% 6 months average price: € 6.91 Acquisition FV: € 2.74-3.18 billion

Valuation Drivers for Bulgari Long Term EBIT Margin (%) 13.40% 14.40% 15.40% 16.40% 17.40% Long Term Growth 1% 7.08 7.12 7.16 7.20 7.23 1.50% 7.39 7.43 7.47 7.50 7.54 2% 7.74 7.78 7.82 7.86 7.89 2.50% 8.15 8.18 8.22 8.26 8.30 3% 8.62 8.66 8.70 8.73 8.77 WACC (%) 7.1% 8.1% 9.1% 10.1% 11.1% Terminal Growth 1.0% 7.4 7.3 7.2 7.0 6.9 1.5% 7.7 7.6 7.5 7.4 7.2 2.0% 8.1 8.1 7.8 7.7 7.6 2.5% 8.5 8.5 8.2 8.1 8.0 3.0% 8.9 8.9 8.7 8.6 8.5 Long Term Growth Rate & EBIT Margin Capital Structures & Terminal Growth of Cash Flows

BCG Matrix for Bulgari Jewelry & Watches Perfume Accessories

BCG Matrix for LVMH Jewelry & Watches Perfume Wine & Spirits Fashion & Leather goods Selective Retailing

Synergies | Jewellery and Watches ,[object Object],[object Object],[object Object],[object Object],LVMH BULGARI Jewellery ,[object Object],[object Object],[object Object],Watches ,[object Object],[object Object],[object Object],[object Object]

Synergies | Perfumes and Cosmetics ,[object Object],[object Object],[object Object],[object Object],LVMH BULGARI Perfumes ,[object Object],[object Object],[object Object],[object Object],Cosmetics ,[object Object],[object Object],[object Object]

Synergies ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],LVMH Bulgari Incremental sales/capex 1.44 1.06 Incremental EBIDTA/capex 0.37 0.19 Synergies Realized (€mn)

Strategic Fit – Value chain match-up Purchase from Suppliers Technology Operations Marketing Sales & Distribution Service Jewelry & Watches Wine & Spirits Perfumes Fashion & Leather goods Accessories Selective Retailing No synergy Strong synergy Medium synergy

Financing Options ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],All Cash Deal Equity-Debt Deal Total Value of Synergies (m€) 967.75 937.58 Synergy per share (€) 3.23 3.13

Determination of Acquisition price ,[object Object],[object Object],[object Object],[object Object],[object Object],Final Acquisition Price Equity Value to Acquirer Equity Value: Standalone € 3332.4mn € 555.4mn € 2777mn € 2342mn € 184mn € 2483mn Premium Paid Less: Net Debt Enterprise Value Synergies Stand-Alone Valuation Transaction Valuation

2008 | Right year for acquisition? ,[object Object],[object Object],[object Object],[object Object],[object Object],-3% -7% -2% +2% Russia China India Brazil Population 145mn 1.3bn 1.1bn 190mn HNWI(‘07) 138000 415000 123000 143000 Luxury Goods market (‘07) % of total market 3,6 €B 2,1% 4,5 €B 2,7% 0,6 €B 0,4% 1,3 €B 0,8% Expected growth (5yrs) 20% 30% 25% 35%

Alternatives for LVMH ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

References ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]

WACC Calculation ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Back Risk free rate 3.72% Equity risk premium 4.50% Beta 1.26 Cost of equity 9.4% Debt premium 1.50% Gross cost of debt 5.22% Tax rate 12.00% Net cost of debt 4.59% Share price ( € ) 6.91 Shares issued (m) 299.53 Market capitalisation (m € ) 2,070 Net debt - book (m € ) 150 Enterprise value (m € ) 2,220 WACC 9.07

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The Deal