LVMH flirts with Ralph Lauren merger

Luxury giant LVMH has held exploratory discussions with Ralph Lauren over the past couple of years about a possible acquisition of the U.S. fashion brand, according to several sources familiar with the situation.

Why it matters: At any premium to its current enterprise value, which is just under $8 billion, it would be one of the largest apparel deals of all time and cement LVMH's presence in the U.S. market.

• Ralph Lauren declined to comment, while LVMH did not respond to a request for comment.

Between the lines: Sources say the founder, chairman and chief creative officer Ralph Lauren is weighing a succession plan for the business he founded in 1967.

• A sale to LVMH would secure the future of the business under the long-term ownership and stewardship of LVMH, as other labels have done.
• It would be viewed by Lauren as a crowning achievement after building one of the most valuable fashion brands in the U.S.
• The company recently revealed third-quarter earnings that handily beat estimates.
• Last year, the company sold apparel chain Club Monaco to the PE firm Regent as part of its makeover.

The intrigue: LVMH has been hesitant about making acquisitions of large U.S. brands given the different business approaches toward luxury between Europe and the U.S.

• But since its purchase of jeweler Tiffany, which so far has turned out well, the French conglomerate is more confident about buying American brands.

• While Ralph Lauren is in the middle of reviving its fortunes, there are a number of steps LVMH could take to reposition the label toward higher-margin luxury goods.
• And then there is a dearth of targets in Europe, where most brands are spoken for due to consolidation led by LVMH and its rival Kering.

The bottom line: A potential deal between the two companies underscores how 2022 may shape up to be a big year for retail M&A.

Richard Collings writes the Axios Pro Retail deals newsletter. Start your free trial at AxiosPro.com.