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Burberry CEO Exit Points To Talented War, Not Acquisition

Monday brought disappointment to the designer label

Burberry,

Barbie -0.10%

And for the world’s deal makers of European luxury goods. Top-level poaching incidents could attack two of the most commonly cited acquisition targets from the industry’s shopping list for some time.

Burberry said CEO Marco Gobbetti will leave to join the Italian shoemaker in December

Salvatore Ferragamo..

SFER -1.63%

He has been in the job for less than five years and has resigned while the turnaround of the British brand is only half completed. During Gobetti’s tenure, Burberry’s stake returns 9% each year, lagging behind larger brands such as Hermes and Prada.

Burberry’s board, which had only heard about Mr. Gobetti’s plans over the weekend, now needs to find a new boss and reassure investors that designer Ricardo Tisi will not follow him outside the door. .. The company’s stock fell 8% in the morning trading in London.

Burberry CEO Marco Gobbetti will leave in December to join the Italian shoemaker Salvatore Ferragamo.


Photo:

Burberry Dave Benett / Getty Images

Both Salvatore Ferragamo and Burberry have long been considered targets for acquisition, but the former is managed by the family. Some shareholders are confident that the pandemic will force weak brands to sell to one of the larger, cash-rich European luxury homes, such as Gucci’s owner Kering. Hiring one of the industry’s top CEOs suggests that the Ferragamo family is serious about turning the brand around on their own. Despite aggressive hiring, the company’s stock fell 2%.

The timing is bad for Burberry, the most famous checkered trench coat. A few years after the transformation, the brand began to show signs of improvement. In the 12 months leading up to the pandemic in March, sales fell by 10%, but the label sells more products at full price, improving its image among shoppers. is showing. Now the investor has to wait for a new boss to be found and see if he or she changes direction.

Uncertainty is likely to weigh on Burberry’s share price, making Burberry a more attractive acquisition target in theory. However, stocks are still trading at 24 times the expected return, which is a bite. Adding a 30% acquisition premium to the value of the stock, Burberry comes with a £ 11 billion price tag, or $ 15.3 billion at current exchange rates. This is a risky bet given the still volatile outlook. Opportunistic buyers would have been able to get it much cheaper last year.

Meanwhile, Salvatore Ferragamo’s move to hire Mr. Gobetti is a pandemic. Rethink among several independent luxury brands.. To attract Mr. Gobetti’s caliber boss, the ruling family would have had to give him a guarantee that they would not interfere with his strategy. We recognize that poorly performing names need to be changed to compete with giants such as:

LVMH Moet Hennessir Iviton,

The world’s largest luxury company whose hands have been strengthened by the crisis.

Investors may expect Salvatore Ferragamo to be refined and sold with a higher reputation within a few years. But for now, the harsh outlook for small luxury brands isn’t a big deal, but a battle for the best executives.

Write to Carol Ryan carol.ryan@wsj.com

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Burberry CEO Exit Points To Talented War, Not Acquisition

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