By Mimosa Spencer
PARIS (Reuters) -Shares in Gucci-owner Kering (LON:0IIH) rose in early Friday trading following a report the French luxury goods company is in advanced talks to buy U.S.-based fashion label Tom Ford.
Shares were up 2.4% in morning trade, after the Wall Street Journal on Thursday reported the company was the front runner for a deal, with rivals including Estee Lauder (NYSE:EL).
Kering has been the focus of persistent M&A speculation, with the recent underperformance of its star label Gucci - which accounts for the bulk of group profits - putting it under market scrutiny after years of stellar growth.
"The logic is compelling," said Piral Dadhania of RBC, of such a deal, citing Tom Ford's past as creative director of Kering labels Gucci and Yves Saint Laurent in the nineties and into the early 2000s, as well as the label's high positioning.
While it would not be "needle-moving" for Kering in the near term, the company could potentially benefit from Ford's involvement in a broader capacity, added the analyst, who also noted the French group has complementary expertise to further develop the label's offer in womenswear and leather goods.
A towering figure in American fashion, the Texas native is known for defining one of Gucci's most popular eras before launching his own label. He started out with menswear, later adding womenswear, beauty products and glasses. Most of the label's business is made through licences in beauty with Estee Lauder and eyewear with Marcolin, according to Exane BNP Paribas (EPA:BNPP).
Kering, which has been bulking up its eyewear division, recently purchasing U.S. label Maui Jim, has also signalled interest in expanding into beauty.
European luxury goods companies have been investing in the U.S. market, which overtook Europe last year to become the world's top luxury market, expanding beyond traditional high-end locations such as Madison Avenue into cities like Detroit and San Antonio.
Consumers in the United States are showing a strong appetite for luxury, and are expected to continue driving the market next year, especially given uncertainty in China, where strict COVID-19 policies continue to interrupt business in that market, according to analysts at Jefferies.
With few financial details available on Tom Ford's label, some analysts were cautious.
"We would not be overwhelmed" if Kering purchased the company, said Exane BNP Paribas analysts, citing questions over the label's long term brand equity value, noting younger consumers were not familiar with the designer's "glory days at Gucci."
The deal would not be a game changer for Kering, they added, citing the potential price tag of $3 billion, compared to Kering's market capitalization, which is around 60 billion euros ($59 billion).
($1 = 1.0220 euros)