We will study and analyze the acquisition by PPR group of German sporting goods company Puma which was finalized in August 2007.
We will discuss the following issues and concerns:
-Who are these groups? What are their core businesses?
-What reasons led to the takeover? What justification is given by the business portfolio and strategy led by PPR?
-What are the risks of power on both sides?
-What synergies can such an operation lead to?
In 1962, the company Pinault was born, initially it specialized in trading of timber and building materials.In the early 1990s, François Pinault took a first strategic shift by deciding to disinvest from the timber industry and turn to the general public and specialized distribution.The company decided to take control and bought CFAO, Conforama, Printemps, Fnac . Hence they got the name Pinault-Printemps-Redoute.
In 1999, the group took a second strategic shift, this time towards luxury, and acquired the brands such as Gucci, Yves Saint Laurent and Bottega Veneta, Balenciaga. In 2003, Francois Pinault assigned and transferred the succession of the business to his son Francois-Henri Pinault. The group will officially be noted as PPR from 2005.
PPR has demonstrated its ability to create and manage strategic changes with wood specialized distribution and consumer distribution to luxury.
Today, PPR focuses on two major divisions: it is the No. 1 among European supermarkets and No. 3 worldwide in luxury goods.
On one hand, the distribution corresponds to mass activities on markets that are stable and mature within which the group selects the segments of the most dynamic professions.On the other hand, luxury activities develop on all world markets, but show higher growth and profitability levels.
It is found that the distribution represents a significant volume for PPR (80% of its turnover in 2006), but the growth of this segment is much lower than that of luxury (+3.3% in 2006 against a rising sales of luxury from 17.6% in 2006) due to a weaker business environment. This is one reason why in 2006, the brand split some of its distribution activities such as Spring Orcanta, Kadéos, etc.
Is PPR heading to all-luxury model? Buying Puma seems to contradict this assertion.
PPR generates nearly half its sales in France and about 70% on the European continent.The second outlet is the American continent which accounted for 13% of sales in 2006. Finally, Africa generates 10% of consolidated sales through its subsidiary CFAO.
Tags: business portfolio of PPR, PPR's acquisition of Puma, luxury goods distribution
[...] Thus, the turnover of market is much increased (through acquisitions) and consumer demand.The largest acquisition was that of Reebok by Adidas. In 2006, the World Cup indeed played a role in achieving huge sales. Strategic Trends The apparel industry and sports equipment have shown a strong trend towards internationalization in recent years. The core players in the business are required to focus on marketing, advertising (about 15 to 16% of sales) and also on retail outlets. In the 90s, the sector evolved considerably since the image acquired by a product to market has become supreme. [...]
[...] Interest in the acquisition of Puma by PPR While the strategy of the PPR group seemed to be heading towards a direction for an orientation around exclusive luxury, it surprised markets with the acquisition of the German sporting goods company Puma. The main risk taken by PPR during its takeover was a misunderstanding of the markets about its future strategy. However, core players of the equity markets have responded very well to this acquisition. Undoubtedly, Puma keeps an exceptional growth potential.In addition, it operates in a particularly dynamic sector, the clothing and sporting equipment. [...]
[...] Financial items It should include either the key figures of the group before the acquisition of PUMA, or 2006 results: - Turnover: 17,931 million euros - Gross Margin: 7856 million - Net income: 685 million euros compared to 2005 comparable basis) The breakdown of operating profit by activity is defined as follows: Puma Activities and growth Founded in Germany in 1948, PUMA is one of the major producers of footwear, apparel and sporting goods markets worldwide.PUMA has a global distribution network consisting of sports shops, department stores and boutiques in over 80 countries worldwide. [...]
[...] Synergies with the luxury division The acquisition of Puma by PPR notably allows one to consider synergies with the luxury division. Puma had rapidly understood the interest of strengthening associations between the worlds of sport and fashion. In 2006, the German brand particularly asked Alexander McQueen to give it an exclusive collection. Alexander McQueen is also one of the creative directors of PPR. This strategy is confirmed with the announcement of 28 February 2008 regarding the appointment of fashion designer Hussein Chalayan to the post of creative director of Puma. [...]
[...] In all cases, the acquisition of Puma allows PPR to strengthen its exposure in the areas of luxury and fashion (two sectors where margins are higher). This acquisition is little risky since the German equipment is highly profitable and they have obvious growth prospects Overview of Operation Description of the transaction amount Given the prospects for future synergies that would generate such an acquisition, as mentioned, the PPR will actually try to take control of Puma. Having acquired the of Mayfair in Puma for 1.4 billion euros (or 330 per share), PPR decided to launch a takeover bid for the shareholders of the group.The recommended offer has full support of the Board of Puma which sees unique opportunity to maintain its goals and become the company's sportslifestyle most admired sports-lifestyle company in the world." The public offer will be made the principal balance at the same price of 330 per share, valuing PUMA to 5.3 billion euros. [...]
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