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Burberry, the investors coveted candy

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Dec 14, 2010

The quistessential luxury group has been in the spotlight for weeks, under speculations of being targeted by the luxury conglomerate PPR which already own the nine fashions gathered within the Gucci Group (Gucci, Bottega Veneta, Yves Saint

Laurent, Alexander McQueen, Balenciaga, Bédat & Co.,Boucheron, Sergio Rossi and Stella McCartney).

“There have been reports that PPR was close to an agreement with Steinhoff to sell Conforama,” summed up for Businessweek Peter Farren, an analyst at Bryan Garnier. “That would fuel speculation on Burberry.” PPR is in talks with “various” investors about the sale of its Conforama unit, including Steinhoff International Holdings Ltd., Africa’s largest furniture maker, PPR said early this month. Conforama, France’s second-largest furniture retailer, has been valued by Sanford C. Bernstein analysts at about 1.3 billion euros ($1.72 billion).

Aft
er one week being the favorite gossip the City, shares in Burberry soared to a record on persistent rumours that a bidder is circling the luxury retailer. The British emporium saw its share price leap above £12 on Wednesday amid rumours of interest from Chinese investors. Burberry's share price has rocketed 96 per cent this year on the back of excellent sales growth but also on speculation that a number of global suitors are eyeing up the group.

As published in international trade media, the PPR have been mentioned as predators but PPR denied it is interested through an official statement last Friday: “Burberry is a very beautiful brand, but it does not match the selection criteria for our luxury portfolio...” made clear PPR spokeswoman Charlotte Judet. Burberry's shares closed down at £11.08 on Friday.

Speculations rocketed after head of PPR, François-Henri Pinault admitted the group is looking to buy another brand, perhaps early next year. Some market analysts have speculated that Burberry isn’t an ideal choice for the group as another fashion brand would "cannibalise" customers from the Gucci group's existing brands which appeal to exactly the same consumers. On the other hand, UK-based analysts argue that in the current market PPR wouldn’t necessarily be able to afford Burberry anyway. In this sense, analysts at JPMorgan pointed out how “Burberry is simply way too big for PPR – it would need to sell all of its retail assets and its CFAO minority [African distribution arm] to come anywhere close to Burberry’s current enterprise value.”

John Guy, analyst at Royal Bank of Scotland, said to Financial Times that Burberry is one of the few luxury goods groups free from family control or a blocking stake. “It is the only 100 per cent free-float listed company out there, with real size and scale, and with the opportunity still to grow further,” he said.

“From a luxury goods perspective, if someone wants the growth from a fast-moving brand, Burberry is in that camp,” conclude Kate Calvert, analyst at Seymour Pierce, in an article for Financial Times.