Confidential LVMH / Bulgari alliance
PRELIMINARY | SUBJECT TO FURTHER REVIEW AND EVALUATION Luxury sector landscape
n The luxury sector was dominated by large conglomerates with global presence and diversified brand portfolios n Larger luxury groups acted as consolidators acquiring smaller companies / brands
2011E revenues of key sector players (€ in millions) Market cap €56,286m €13,991m €25,031m €10,960m €16,167m €16,307m €5,624m €6,079m €2,693m €2,264m 21,948
15,063
7,220 6,465 5,188
2,640 2,429 1,954 1,158 857
LVMH PPR Richemont Luxottica Swatch Hermes Tiffany & C o. Burberry Bulgari Tod's Group
Bulgari was a relatively small company in the luxury space
Source: FactSet as of 01 March 2011. Confidential 1 Handout Share price performance of key luxury players
Sector share price performance rebased to Bulgari share price (€)
9.5
9.0
8.5 49.0% 44.8% 8.0 35.9% 34.5% 33.7% 7.5 31.6%
7.0
6.5 10.9% 6.0
5.5
5.0 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 S ep-10 O ct-10 Nov-10 D ec-10 Jan-11 Mar-11 Bulgari S .P .A. LVMH Moet Hennessy Louis Vuitton P P R S .A. C ompagnie Financiere Richemont S .A. S watch G roup AG MS C I Textile Apparel & Luxury G oods MS C I E urope
The luxury sector had performed strongly in the twelve months before the transaction
Source: FactSet as of 01 March 2011. Confidential 2 Potential partners / buyers overview Key financials 2011E Net debt / Key brands Market cap Revenues Net debt/(cash) EBITDA EBITDA Major shareholder(1) LVMH
€56,286 €21,948m €2,099m €5,632m 0.4x n Arnault Family − Economic 48% − Voting 64%
PPR
€13,991m €15,063m €3,781m €1,920m 2.0x n Pinault Family − Economic 41% − Voting 56%
Richemont
€25,031m €7,220m (€1,882m) €1,849m NM n Rupert Family − Economic 9% − Voting 49%
Swatch
€16,167m €5,188m (€1,762m) €1,409m NM n Hayek Family − Economic 24% − Voting 43%
Source: Company information, FactSet as of 01 March 2011. Note: Data calendarised to December year end and converted into € at spot exchange rate as of 01 March 2011. Confidential (1) Fully diluted holdings, net of treasury shares. 3 Potential partners / buyers Pros & Cons LVMH
Buyer perspective Seller perspective
Pros & Cons P Strong LTM stock performance vs. FTSE France Large P Becoming part of the leading luxury group with proven and Cap Index unique integration track record P Favourable exchange ratio (0.06x vs. 5-year average of P Possibility to become the flagship brand in LVMH Watches 0.09x)(1) and Jewellery business P Opportunity to add a unique brand to LVMH portfolio and P Possibility to lead the entire Watches & Jewellery business strengthening of LVMH Watches & Jewellery business unit unit (c.5% of the Group revenues ex Bulgari) P High liquidity position (~€2.5bn of cash on balance sheet)
? Relative valuation? ? Ownership dilution? ? Earnings dilution? O Unfavorable exchange ratio (0.06x vs. 5-year average of (1) O Potential lower appetite for further M&A activity following 0.09x) acquisition of Hermés stake
Historical exchange ratio evolution(1)
0.160 Trading Bulgari LVMH multiples on n EV/EBITDA 11E: 13.9x 9.9x 0.140 01 March 11 n EV/EBITDA 12E: 11.8x 8.6x n P / E 11E 29.2x 19.5x n P / E 12E 21.8x 16.9x 0.120
0.100 0.06x 0.080 0.09x 0.060
0.040 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Exchange ratio 5-year average
Source: FactSet as of 01 March 2011. (1) Number of new buyer shares issued for each target share acquired. Confidential
4 Potential partners / buyers Pros & Cons (cont’d) PPR
Buyer perspective Seller perspective
Pros & Cons P Excellent LTM stock performance P Become the second largest shareholder in PPR+Bulgari P Acquisition of Bulgari would accelerate the transformation combined entity into a pure luxury company P Possibility to stay at the helm of luxury business of the P Increase exposure to jewellery / watches company P Favourable exchange ratio (0.066x vs. 5-year average of 0.078x)(1) P Sale of Conforama provided PPR with financial resources
? Relative valuation? O Unfavorable exchange ratio (0.066x vs. 5-year average of (1) ? Earnings dilution? 0.078x) O Relatively high size of Bulgari (too big a bite?) O Diversified business model with exposure to retail business (Fnac, Redcats) O Even after the disposal of Conforama, current PPR leverage O PPR still more levered than peers (Pro-forma Net Debt / limits the possibility to fund an acquisition with additional debt EBITDA 2011E of 2.0x vs. key competitors with leverage <1.0x) Historical exchange ratio evolution(1)
0.180 Trading Bulgari PPR multiples on n EV/EBITDA 11E: 13.9x 9.6x 0.160 01 March 11 n EV/EBITDA 12E: 11.8x 9.0x n P / E 11E 29.2x 14.8x 0.140 n P / E 12E 21.8x 13.1x 0.120 0.100 0.080 0.078x 0.066x 0.060 0.040 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Exchange ratio 5-year average
Source: FactSet as of 01 March 2011. (1) Number of new buyer shares issued for each target share acquired. Confidential
5 Potential partners / buyers Pros & Cons (cont’d) Richemont
Buyer perspective Seller perspective
Pros & Cons P Excellent LTM stock performance P Become a core shareholder of the combined entity alongside P Adding a renowned brand to its unique luxury brand portfolio Rupert Family P Favourable exchange ratio (0.18x vs. 5-year average of P Possibility to maintain full operating independence in the 0.33x)(1) context of the maison business model P Solid cash balance P Possibility to leverage on Richemont expertise and distribution network in the watch segment
? Relative valuation? O Unfavorable exchange ratio (0.18x vs. 5-year average of (1) ? Earnings dilution? 0.33x) O Net-a-Porter integration ongoing O Two different categories of shares at Richemont level with significant discrepancies in terms of voting rights − Registered shares held by the R. Family are not listed − Statutory provision to maintain the ratio between registered and bearer shares unchanged in case of capital increase Historical exchange ratio evolution(1)
0.55 Trading Bulgari Rich. multiples on n EV/EBITDA 11E: 13.9x 12.6x 01 March 11 n EV/EBITDA 12E: 11.8x 11.2x 0.45 n P / E 11E 29.2x 19.1x n P / E 12E 21.8x 16.8x 0.35 0.33x
0.25 0.18x 0.15
0.05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Exchange ratio 5-year average
Source: FactSet as of 01 March 2011. (1) Number of new buyer shares issued for each target share acquired. Confidential
6 Potential partners / buyers Pros & Cons (cont’d) Swatch
Buyer perspective Seller perspective
Pros & Cons P Possibility to further strengthen the competitive position in P Complementary distribution channels with a focus on directly the watches and jewellery segments owned retail distribution P Favourable exchange ratio (0.02x vs. 5-year average of P Possibility to leverage on Swatch strong expertise and 0.04x) positioning in the watch segment P Solid cash balance P Possibility to increase presence in the US market
? Relative valuation? O Unfavorable exchange ratio (0.02x vs. 5-year average of (1) ? Earnings dilution? 0.04x) O Integration risk given the relative size of the acquisition O Two different categories of shares at Swatch level with significant discrepancies in terms of voting rights
Historical exchange ratio evolution(1)
0.10 Trading Bulgari Swatch multiples on n EV/EBITDA 11E: 13.9x 10.2x 01 March 11 n EV/EBITDA 12E: 11.8x 9.1x 0.08 n P / E 11E 29.2x 16.9x n P / E 12E 21.8x 14.6x 0.06 0.04x 0.04 0.02x 0.02
0.00 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Exchange ratio 5-year average
Source: FactSet as of 01 March 2011. (1) Number of new buyer shares issued for each target share acquired. Confidential
7 Handout Key data for accretion / (dilution) and leverage analysis
Price per share (€) €7.72 €115.3 €110.3 €41.9 €310.4
# of shares out. 349m 488m 127m 597m(1) 54m(2)
Market cap €2,693m €56,286m €13,991m €25,031m €16,167m
Net debt / (cash) 0 €2,099m €3,781m (€1,882m) (€1,762m)
EBITDA 2011E €193m €5,632m €1,920m €1,849m €1,409m
Net income 2012E €123m €3,337m €1,073m €1,490m €1,108m
Cost of debt NA 5.5% 6.0% 6.0% 6.0%
Marginal tax rate NA 33.3% 33.3% 21.0% 19.6%
Which could be the most suitable partner from an accretion / (dilution) and leverage standpoint?
Source: FactSet. (1) # of equivalent shares. Each share having 10 economic rights. Confidential (2) # of equivalent shares. Each share having 5 economic rights. 8 Bulgari acquisition matrix
(1)
Source: FactSet. (1) Volume Weighted Average Price. Confidential Premia paid in previous majority voluntary tender offers in Italy. Comparable companies trading multiples. 9 Average trading multiples of previous comparable transactions.
Top-notch valuation
June 2008 – June 2011 share price performance Valuation considerations
20.0 30 Jun 2011: Antitrust approvals EV / LTM EBITDA multiple of selected transactions in the luxury 14.0 and closing of the space(1) Agreement
Tender offer price: €12.25 LVMH / Bulgari 27.7x 89.7% 12.0 15.0 Offer price: €12.25 ~60% premium vs. pre- PPR / Gucci 23.0x (2) announcement price 10.0
07 Mar 2011: Volume (m) LVMH / Fendi 16.9x Announcement of the Agreement 10.0 between Bulgari- LVMH / Donna 8.0 16.6x Price (in €) Trapani Family and Karan LVMH Permira / 14.4x 6.0 Valentino 5.0 Labelux / Jimmy 13.8x (29.9% ) Choo 4.0 Permira / Hugo 13.3x Boss
2.0 0.0 Eurazeo / 12.0x Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Moncler Volume (in millions) Bulgari FTS E Italy
“As befits a high-end jeweler, Bulgari has secured a top price…” – Wall Street Journal
Source: Company data, FactSet. (1) First name indicates acquiror, second name indicates target. Confidential (2) Blended multiple of three-stage PPR acquisition of Gucci. 10 Bulgari share price performance post announcement
January 2011 – September 2011 share price performance
20.0 30 Jun 2011: 29 Sep 2011: Antitrust approvals Bulgari is delisted 14.0 and closing of the from the Milan stock Agreement exchange
Tender offer price: €12.25 51.1% 15.0 12.0
07 Mar 2011: Mandatory tender offer period Announcement of the
Agreement between Volume (m) 10.0 Bulgari-Trapani Family and LVMH 10.0 Price (in €)
8.0
5.0
6.0 (32.1% )
4.0 0.0 Jan-11 Feb-11 Mar-11 Apr-11 Jun-11 Jul-11 Aug-11 S ep-11 Volume (in millions) Bulgari FTS E Italy
After the announcement of the transaction, Bulgari share price aligned to the mandatory tender offer price of €12.25 per share
Source: Company data, FactSet. . Confidential 11 LVMH share price performance post announcement
March 2011 – May 2012 indexed share price performance(1)
150.0
140.0
130.0 13.8%
7.0% 120.0 5.0% 1.4% 1.2% 110.0
(8.1% ) 100.0 (10.6% )
90.0
80.0 Mar-11 Apr-11 May-11 Jul-11 Aug-11 S ep-11 Nov-11 D ec-11 Jan-12 Mar-12 Apr-12 May-12 LVMH Moet Hennessy Louis Vuitton P P R S .A. C ompagnie Financiere Richemont S .A. S watch G roup AG Tiffany & C o. Luxottica G roup S .p.A. Tod's S .p.A.
After the announcement of the transaction, LVMH share price performed positively
Source: Company data, FactSet. (1) Prices indexed to LVMH share price. Confidential . 12 Detailed transaction overview
Transaction summary and structure
On 05 March 2011, Paolo Bulgari, Nicola Bulgari and Francesco Trapani (the “Bulgari Family”), the majority shareholders of Bulgari, and LVMH entered into an agreement having as object a business combination between LVMH and Bulgari (the “Agreement”)
n The Bulgari Family agreed to contribute and transfer to LVMH all the 152.5m Bulgari shares owned, equal to 50.6% of the share capital of Bulgari plus any additional share acquired before the Closing Date (30 June 2011) in exchange for newly issued LVMH shares − In particular, the Bulgari Family agreed to contribute 13.8m shares received upon the settlement of an equity swap equal to 4.58% of the share capital of Bulgari. The Bulgari Family entered into such equity swap to hedge the dilution risk arising from the potential conversion of a €150m Bulgari convertible bond
n The agreed exchange ration was 0.108407 newly issued LVMH share for 1 Bulgari share contributed, and was calculated assuming an agreed price per Bulgari share of €12.25 Key transaction data n Paolo Bulgari (Chairman of Bulgari) and Francesco Trapani (CEO of Bulgari) Offer price (€) 12.25 were appointed directors of LVMH Premium to Pre-annuncement price (03 Mar 2011) 59.4% − Francesco Trapani was appointed Head of LVMH Watches & Jewelry 1m VWAP (one-month Volume Weighted Average Price) 59.9% division and member of LVMH Executive Committee 3m VWAP 57.3% n On 30 June 2011 all the necessary Antitrust approvals were obtained and 6m VWAP 66.2% the Bulgari Family contributed the majority stake in Bulgari into LVMH and 12m VWAP 82.1% received LVMH shares in exchange
Implied Equity Value (€m) 4,273 n The execution of the Agreement triggered the obligation for LVMH to launch Implied Enterprise Value (€m) 4,269 a Mandatory Tender Offer (the “Offer”) on the minority shareholders of Implied multiples Bulgari at a price of €12.25 per share payable in cash EV / EBITDA LTM 27.7x n On 23 September 2011 the Offer was successfully completed (92% EV / EBITDA 2011E 22.2x acceptance). LVMH exercised the squeeze-out right on the residual Bulgari P / E LTM 112.4x minorities and Bulgari shares were suspended from trading on 29 P / E 2011E 44.5x September 2011 LVMH acquisition of Bulgari has reshaped the Watches & Jewelry market, doubling LVMH presence in the space
Confidential 13 Strong strategic rationale
1 Capitalise on shared philosophy for exceptional craftsmanship, creativity and production expertise
2 Complete a unique luxury brand portfolio, while preserving Bulgari brand heritage and exclusivity
LVMH Watches & Jewelry division revenues (€ in millions) x2 Create a global leader in the strategic Watches & 3 2,054 Jewelry segment 985 2010 reported revenues 2010 pro forma revenues
Accelerate Bulgari growth and reach full potential We found in Bernard Arnault and the Group he has built all the elements that are required to guarantee the long term future of Bulgari: the ability to 4 joining an exceptional platform and leveraging on gather into one powerful organisation different brands that can grow and LVMH expertise and resources develop while preserving both their identity and originality Paolo Bulgari, Chairman” of Bulgari The alliance between my Group and the Bulgari Family is a perfect 5 Shared vision of family control and long-term combination from all points of view as we share the same culture in terms strategy of respect for identity and roots of the brands, quest for excellence, creativity and innovation. ” Bernard Arnault, Chairman and CEO of LVMH Benefit of the leadership of Francesco Trapani as Our entrance into LVMH will allow Bulgari to reinforce its worldwide 6 Head of the enlarged LVMH Watches & Jewelry growth and to realise noteworthy synergies, in particular in the areas of division purchasing and distribution. ” Francesco Trapani, CEO of Bulgari Strategic alliance between the Bulgari Family and LVMH based on shared philosophy and a clear and strong industrial transaction rationale
Source: Company data. Confidential 14 Enthusiastic press reaction