The key rationale behind this bet is a merger arbitrage based on some strong indications of a potential buyout by LVMH. Momentum is heating up after Bernard Arnault increased his group's shareholding in Tod's from 3.2% to 10% last April, in a €75mil deal that valued shares at €33.
The Arnault and Della Valle families seized the opportunity to underscore their longstanding friendship ties and "common values", as well as the "further opportunities" to consider. Together, they control more than three-quarters of equity capital and almost all voting rights.
As a result, there are valid reasons to believe that the families will either take Tod's private — float is minuscule and the interest of a public listing pointless as ever — or that LVMH will absorb the venerable fashion house.
Buying out the Della Valle's stake would likely command a share price around €50, if not more. The family increased its stake two years ago at more than €40 per share, and there would be a premium to pay for control — plus considerable synergies to factor in.
Such scenario would give a valuation of about x2 the normalized — that is, pre-pandemic — annual revenue for Tod's, which has been a typical floor in luxury M&A. A higher price cannot be ruled out, but it will remain conditional on the success of the much needed brand revitalization.
In effect, Tod's must reinvent itself after a lost decade during which its ultra-prestigious image — which back in the days made it the darling of celebrities, from the British royal family to Hollywood stars — has lost some of its luster.
It is to serve this purpose that excellent creative director Walter Chiapponi has joined six months ago, credentialed by the successful turnaround of Bottega Veneta — another famous Italian luxury house, this one owned by Kering. He replaced Alessandra Facchinetti, whose own revitalization efforts failed.
An integration of Tod's into the LVMH's ecosystem would naturally make a lot of sense, as it would open whole new worlds to the newcomer. The French luxury giant brings unlimited firepower thanks to its global platform integrated from purchasing and marketing to distribution.
As a standalone entity, Tod's would likely fall short of overcoming its challenges. Without scale, its cost structure will remain incompressible — be it with respect to marketing budgets, procurement of raw materials or the development of unique craftsmanship — and consume all profits.
(For the record, Italien peer Ferragamo is stuck in a fairly similar gridlock, albeit no white knight has yet to manifest himself.)
All of that could change overnight if the Della Valle family throws the towel and handles the keys to Bernard Arnault. The success of the revitalization effort remains a necessary condition for Mr. Arnault to make his move: he already proved with DKNY that he wasn't willing to keep ailing brands on life support.
That being said, it would be absolutely unfair to compare Tod's with DKNY — the latter is a young American brand that benefited from a temporary hype whereas the former is an authentic, unique Italian luxury powerhouse.