Kering SA agreed to buy a 30% stake in fashion house Valentino for €1.7 billion ($1.87 billion) in cash as growth at Gucci, its biggest brand, continues to sputter.
The French company has the option to purchase the rest of Valentino from its owner, Qatar’s Mayhoola, before the end of 2028. The deal, coming just weeks after Kering bought high-end perfumer Creed, could lead to Mayhoola taking a stake in the luxury group.
The Gucci owner has struggled to keep pace with rivals amid a boom in the fashion business that’s helped transform bigger French firm LVMH into the most valuable company in Europe. Hermes on Friday posted a jump in sales on resilient demand for products like its Birkin handbags, notably in the US and China.
Kering Chief Executive Officer Francois-Henri Pinault is pushing to close the gap with its rivals. Activist investors including Bluebell Capital Partners Ltd. are circling the French luxury group, with Kering sounding out defense advisers, Bloomberg reported earlier this month.
The deal is “strategically sound,” Stifel analyst Rogerio Fujimori said in a note. “Valentino should be able to leverage Kering’s internal capabilities and expertise to accelerate its development and improve its margins.”
Kering shares rose as much as 1.8% in early Paris trading.
Leveraging Capabilities
Valentino, whose red carpet designs have been worn recently by stars ranging from Zendaya to Florence Pugh, was founded in Italy in 1960 and acquired by Qatar’s Mayhoola for Investments SPC more than a decade ago.
The brand had revenue of €1.4 billion last year and €350 million in earnings before interest, taxes, depreciation and amortization. It has 211 stores in more than 25 countries.
A Kering holding by Mayhoola would mark another prominent French investment for Qatari firms, which have snapped up assets in recent years, including the Paris Saint-Germain football club.
Gucci sales rose just 1% in the second quarter on a comparable basis, the company said Thursday, well behind the 4.2% gain analysts expected.
Kering, which gets two thirds of it profit from the brand, has already shaken up leadership to revive its appeal. Last week, the company announced the impending exit of Gucci Chief Executive Officer Marco Bizzarri, to be replaced on a temporary basis by Jean-Francois Palus, a trusted lieutenant of CEO Pinault. Kering will start a search for a permanent Gucci CEO from September, Pinault said.
That follows the November exit of creative director Alessandro Michele, whose flamboyant designs had fallen out of favor. Michele was replaced by Sabato de Sarno, a former Valentino designer who is expected to unveil his debut collection in September in Milan.
Read More: Gucci Shakeup Sends Kering Shares Higher on Brand Rebound Bets
The agreement with Mayhoola was done “quite fast,” and the goal was to sign the deal before the summer, Kering Chief Financial Officer Jean-Marc Duplaix told analysts on a call.
(Adds opening shares, Hermes results)