French billionaire Bernard Arnault is proposing to pay EUR12 billion ($13.04 billion) to unite his storied fashion house Christian Dior with his luxury conglomerate LVMH.
Mr. Arnault used Dior as the basis of his empire starting in the 1980s, building what is now LVMH Moët Hennessy Louis Vuitton SE into the world's largest luxury company with a complex web of ownership: The Arnault family owns 74.1% of Christian Dior SE, which in turn has a controlling 41% stake in LVMH and owns all of Christian Dior Couture, the fashion label.
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That has meant LVMH's minority shareholders have missed out on direct exposure to Dior's rapid growth in recent years, as the label has been considered an independent affiliate of LVMH despite having the same controlling shareholder. Mr. Arnault moved to fix that on Tuesday.
The Arnault family said it would pay EUR260 a share, or EUR12 billion, for the 25.9% of Christian Dior SE it doesn't own. Then LVMH will acquire all of Christian Dior Couture in an internal transaction valuing the label at EUR6 billion.
The EUR12 billion price tag on the Dior SE stake is a 14.7% premium to where Dior's shares closed on Monday.
"The price we're paying is perhaps a little expensive, but in 30 years we'll be happy we did it," Mr. Arnault said at a press conference.
Though LVMH and Dior have routinely cooperated with each other, LVMH executives said the companies can't fully share marketing, finance and administrative resources because of their differing shareholders. That should change once the deal is complete, they said.
Mr. Arnault said the plan would simplify the structure of the businesses, which had "long been requested by the market," as well as strengthen LVMH's fashion and leather-goods division with the addition of Christian Dior Couture.
Shares in Christian Dior soared 11% on the news in Paris trading, while LVMH rose about 4%.
LVMH's sales have proved resilient to recent weakness in the global luxury market. Revenue rose 5% last year, despite terror attacks in Europe and new rules passed by Beijing aimed at pushing globe-trotting Chinese shoppers to spend more at home. Sales in the first quarter of the year surged 15%, easily beating expectations.
The proposed transaction would be the 68-year-old Mr. Arnault's biggest acquisition in years, giving LVMH one of the most elite brands in fashion. It also marks the culmination of Mr. Arnault's decadeslong turnaround of Dior.
Mr. Arnault took control of Dior in 1985, after a group of investors he led purchased its parent company, a lumbering French industrial conglomerate that was near collapse. Mr. Arnault sold off unprofitable businesses and closed factories but kept Dior, his first foray into the fashion business.
"Dior was the first one," said Concetta Lanciaux, an LVMH executive who worked with Mr. Arnault for decades. "Your first one is always the best."
To revive the business, he canceled many licensing deals signed by the French fashion house that he felt had damaged the brand. It is a playbook he used repeatedly as LVMH bought dozens of luxury brands over the next 30 years, Ms. Lanciaux said.
"When you give licenses for your product, it's not as good as if you're making it," she said. "That was where he first developed the strategy: doing your own manufacturing, no outsourcing."
The transaction will also reduce Mr. Arnault's holdings of Hermès International SCA. Mr. Arnault had accumulated an 8.5% stake in the French luxury house during an aborted attempt several years ago to take over the company. Hermès shares have rallied recently, giving Mr. Arnault a stronger currency with which to buy his stake in Dior.
"He's swapping more LVMH and more Dior shares for less Hermès exposure," said Luca Solca, an analyst at Exane BNP Paribas.
Mr. Arnault is proposing to buy Dior's shares using a mix of cash and his Hermès shares. News that Mr. Arnault's shares would be hitting the market pushed Hermès shares down 4.5% in Paris trading.
Dior's results have surged in recent years, with the company reporting a profit of EUR252 million on sales of EUR1.9 billion last year, compared with EUR85 million on sales of EUR1 billion in 2011.
Write to Matthew Dalton at Matthew.Dalton@wsj.com
(END) Dow Jones Newswires
April 25, 2017 13:48 ET (17:48 GMT)