Question

Imagine that you are the CEO of Moet Hennessy Louis Vuitton SE (LVMH).  You have just received share price valuation estimates for a potential buyout target, Rimowa, from two of your top financial analysts. Both analysts used the discounted cash flow (DCF) model to estimate the share price resulting in a valuation of $50, by the first analyst and $60, by the second analyst.  

You made a buyout offer of $55 a share and Rimowa’s CEO rejected it.  The German luxury luggage brand Rimowa is crucial to LVHM’s strategic expansion into brands that have heritage and a unique position.  As the CEO of LVHM what would you do to meet LVHM’s strategic objectivewhile minimizing the costto acquire Rimowa?  Briefly defend your recommendation.

Answer 1

In this case the CEO of Moet Hennessy Louis Vuitton SE (LVMH) can consider attempting a hostile takeover. As Rimowa’s CEO has rejected the bid offer of $55 per share LVMH can look into hostile takeover. This will entail LVMH acquiring Rimowa by going directly to the target company’s shareholders, either by making a tender offer or through a proxy vote.

As acquisition of Rimowa is essential for LVMH’s strategy and its vision for future it will have to consider hostile takeover to fulfil the twin needs of meeting its strategic objectives on one hand and minimizing the cost to acquire Rimowa on the other hand.

LVMH can offer to purchase the shares of Rimowa from Rimowa’s shareholders. This will entail a slight premium from the current market price. As the objective is to minimize the cost of acquisition the premium should not be too high. Through the tender offer LVMH will acquire more than 50% of the voting stock of Rimowa. The second option is proxy vote. In this case LVMH can persuade the existing shareholders of Rimowa to vote out is management. In both the cases LVMH can ensure that its cost of acquisition is well within its desired range and does not exceed $60 per share. This will enable LVMH to meet both its goals of meeting strategic objective and minimizing cost to acquire Rimowa.