Investing.com -- Burberry rose on Monday following reports that Moncler is considering a bid for the British luxury brand.
At 4:30 am (0930 GMT), Burberry was trading 4.6% higher at £849.
This speculation came from an article in the luxury-focused publication Miss Tweed, which mentioned a growing buzz within the industry about Moncler's potential interest in buying Burberry.
Analysts at UBS suggest that Moncler's interest may stem from Burberry's recent decline in market value, with shares plummeting by 53% over the past year.
Moncler, known for its signature puffer jackets, stated on Sunday that it would refrain from commenting on "unfounded rumors" regarding a potential deal.
Sources cited in the article indicate that Bernard Arnault, the controlling shareholder of LVMH (EPA:LVMH), is supportive of this potential acquisition. LVMH, a giant in the luxury sector, has recently taken an indirect stake in Moncler, further fueling speculation about the bid.
The rationale behind Moncler’s interest in Burberry appears to center on the potential to revitalize the struggling brand and leverage supply chain synergies between the two coat manufacturers. Nevertheless, analysts express caution regarding the timing of such a move.
Moncler is currently in the midst of acquiring Stone Island, a deal that has yet to meet market expectations.
With Moncler projected to end 2024 with approximately €1.2 billion in net cash against Burberry's market capitalization of around €3.4 billion, any acquisition is likely to be structured as a mix of cash and shares.
Analysts at UBS predict that Burberry’s shares could see a positive reaction in the market, given its recent financial struggles. However, the response from Moncler’s stock may be more complex.
Investors are likely to weigh the potential dilution impact of a large acquisition, especially since Burberry is expected to report losses this year.
Additionally, there are concerns about the challenges Moncler would face in turning Burberry around, particularly since a major portion of Burberry’s earnings before interest and taxes comes from outlet sales.