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LVMH to pick up stake in Gitanjali Gems' new arm

The world's largest luxury conglomerate, LVMH, through its private equity arm L Capital, is set to acquire a significant minority stake in Gitanjali Gems' proposed subsidiary that will control its branded jewellery and retail businesses, said two persons directly involved in the transaction.

The deal worth $100-125 million is aimed at bringing the world's best know-how, expand aggressively in the domestic market and take Gitanjali Gems to global scale. With India and China accounting for 60 percent of the wealth of the region, the French multinational would be happy to get a larger footprint here.

L Capital will pick up stake using money from its $500-million L Capital Asia Fund, which was raised in 2010. L Capital India's senior official, Anuradha Raja, declined comment on the transaction. NM Rothschild and Keynote Corporate Services are the advisors to Gitanjali Gems, and officials from both the investment banking firms refused comment.

While LVMH focuses exclusively on high-end luxury goods – with icons such as Louis Vuitton and Dior in its portfolio – L Capital has been investing in aspirational as well as luxury goods makers all over the world, such as Gant and Princess Yachts. Its Asia arm, registered in the Cayman Islands, has picked up stake in one Hong Kong-based and two Singaporean watch and retail companies in the past one year.

“Many global players and PE funds have shown keen interest in the company. However, nothing has been decided at this point in time,” Mehul Choksi, CMD of Gitanjali Gems, said. The company is looking for a strategic player who will bring synergy to the high-end retail business of the company, he added.

“The company is in the process of hiving off two divisions – branded jewellery and retail business – into a new subsidiary in which L Capital will pick up a stake,” said one person involved in the deal.

The two divisions currently contribute around 50 percent of the company's revenues, said one person involved in the deal. “The deal is likely to be completed by next month,” added the second person.

Gitanjali Gems has started restructuring its business and aggregating its 32 subsidiaries under four divisions – diamond, infratech, branded jewellery and retail.

One key reason to route the investment through a new subsidiary is to avoid an open offer. Under the takeover code, in case the acquirer buys more than a 15 percent stake in a listed firm, it has to buy an additional 20 percent from the open market, also called an open offer. LVMH is reportedly not willing to pick up stake in a company which has diamond as well as infrastructure businesses.

Second, the transaction in the listed firm would also have resulted in the dilution of the promoters' stake to below 50 percent. The promoters, who own 54 percent in the company, are not willing to dilute at the current market value. At Thursday's closing price of Rs 190, Gitanjali's market capitalisation stands at Rs1,600 crore.

“Under the deal, L Capital will have its nominees on the board of the new subsidiary, which has plans for aggressive expansion of its high-end luxury products and branded jewellery,” said the first person.

Source: Trading Markets

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