Shares in Burberry jumped by almost 8% on Monday before falling slightly on the back of reports that Italian rival Moncler may be considering a bid for the British luxury fashion house.
The historic UK brand, which is known for its check print and trench coats, has emerged as a takeover target as a result of a protracted slump in the price of its shares.
In September, Burberry was dumped out of the FTSE 100 index of Britain’s biggest listed companies after 15 years in the top flight.
Sign up to Money Morning
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don’t miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Monday’s share price spike came after the trade journal Miss Tweed reported that Moncler, which also owns Stone Island, was eyeing a potential takeover of Burberry.
Miss Tweed cited several industry sources who said the head of the luxury goods conglomerate LMVH, which is an investor in Moncler, was eager to get a deal done.
Moncler said it would not comment on “unsubstantiated rumours”.
Why is Burberry a takeover target?
Analysts had suggested Burberry was a clear takeover target earlier this year after the company’s share price fell by almost half over a 12-month period. The slide meant it dropped out of the FTSE 100 index and was replaced by insurer Hiscox, which had seen its share price rise by a fifth over the previous 12 months.
Burberry has felt the impact of a slowdown in the wider luxury sector, with demand from shoppers dented during the cost-of-living crisis. It also ousted its chief executive Jonathan Akeroyd after just over two years in July and axed dividend payouts following a sales slump. Akeroyd was replaced as CEO by industry veteran Joshua Schulman, who was previously the boss of American fashion brands Michael Kors and Coach.
What would a possible takeover mean for Burberry?
Analysts suggest a deal would be positive for the company. Jelena Sokolova, senior equity analyst at Morningstar, says: “Moncler would be securing a promising deal with significant upside.
“Burberry’s new strategic focus on iconic products like outerwear and scarves is commendable and the company is getting more pragmatic in terms of pricing – something they’ve been doing for the past few months.
“Moncler’s expertise in outerwear and its marketing prowess could be a game-changer for Burberry, steering the brand back to its core strengths.”
What will happen to Burberry’s share price?
The fashion house’s share price rose sharply this morning on the news of a possible takeover and, although the company’s stock price has fallen significantly over the longer term, it has risen by a third in the last month.
A lot of the reason for the recent rise is to do with the Chinese government’s announcement that it would carry out the “necessary fiscal spending” to meet the country’s 5% growth target for 2024.
Demand from China for high-end goods has been a key driver of the international luxury goods market and so the stimulus package announced by the People’s Bank of China in September should be beneficial for Burberry.
That said, the company’s share price has fallen from highs of 2,600p in April last year to 856p during afternoon trading on 4 November, and so investors remain cautious.
