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Why Kering Is Backing Away From Puma

Luxury giant Kering is offloading a 5.9 percent stake in German footwear and athleticwear company Puma, with the company selling approximately 8.9 million shares.

Based on Puma’s closing share price of 93.60 euros ($114.10) on Wednesday, Kering would raise approximately 833 million euros ($1 billion) in the sale. The luxury titan said it will announce the sale total after the close of the book building process when the price is officially determined.

Upon selling the stock, Kering is expected to retain approximately 4 percent of Puma’s outstanding shares.

As a result of the sale, Puma’s free float, which designates the amount of company’s shares that can be publicly traded and are not restricted, is expected to increase to approximately 66.7 percent.

This is the second time in seven months that the French luxury fashion house is selling a 5.9 percent ownership stake in Puma. In October last year, the Gucci parent took in approximately 656 million euros ($802 million) with the sale.

The proceeds of this transaction will be used for the “general corporate purposes” and will further strengthen its financial structure, Kering said.

The French giant will return its focus to core luxury brands including Saint Laurent, Balenciaga and Bottega Veneta when the sale is finalized.

An acquisition cannot be ruled out with $1 billion freed up, with Kering chairman and CEO François-Henri Pinault saying in a February earnings call that the company is looking closely at any viable M&A opportunities.

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“The Kering of today is very different from the Kering of five or seven years ago, meaning that we are much stronger at our capability to absorb new brands even at a large scale,” Pinault said. “It is much higher in terms of infrastructure, IT, CRM capability, logistics capability, e-commerce capability that now is up and running and fully operational.”

But Pinault later insisted, “I said that many times in the past, we still have a priority on the organic growth of our brand, starting with Gucci, where we are far away from maturity, in my opinion.”

The company has slowly offloaded the majority of its initial investment in Puma—Kering first acquired a 27.1 percent controlling stake in the German multi-national sport and lifestyle company for 5.3 billion euros ($6.5 billion) in 2007, next increasing its stake to 62.1 percent on completion of a tender offer.

Kering’s share in Puma ended up as high as 86.3 percent of the company by January 2018, when the fashion house revealed it was pulling an about-face. Pinault announced plans to spin off 70 percent of Kering’s shares to shareholders.

Amid the announcement, Pinault stated: “The contemplated distribution of Puma shares to our shareholders would be a significant milestone in the history of the Group. Kering would dedicate itself entirely to the development of its Luxury Houses, whose enduring appeal, built on creative audacity and innovativeness, will allow us to continue to gain market share and create value.”

At the time, Kering retained approximately 16 percent of shares, with a portion going to its holding company Groupe Artémis. Groupe Artémis, also owned by the Pinault family that founded Kering, gained 29 percent of ownership in Puma and holds the same stake today.

If Kering’s results are any indication, the luxury giant is benefiting from keeping its focus on the high-end category. In the first quarter, the French firm bounced back from a rough stretch during the Covid-19 crisis to beat pre-pandemic results, seeing sales jump 5.5 percent compared to the same quarter two years ago.

The narrowed focus also extends to its sales channels. Year-over-year wholesale revenue for Gucci, which contributes 60 percent to Kering’s revenue, was down 26.1 percent on a comparable basis. The wholesale dip comes as the brand aims to gradually enhance the exclusivity of its distribution network.

Like Kering, Puma has shown that it is managing the pandemic well even amid store closures throughout its largest market, Europe. In the first quarter, Puma generated a 17.4 percent jump in sales on a two-year basis.

After the new sale, Kering and Artémis will be subject to a 90-day lock-up where neither party can redeem or sell Puma shares. The lock-up is subject to certain exceptions or waiver by the joint global coordinators.