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LVMH / Bulgari Alliance

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LVMH / Bulgari Alliance 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.
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