TheChek News Flow

Diamondback Energy and Autry Stephens’s Endeavor are finalizing a merger

Rivals Diamondback Energy FANG -1.13%decrease; red down pointing triangle and Endeavor Energy Resources are finalizing a merger that would create an oil-and-gas behemoth worth more than $50 billion, as higher oil prices and a rush to grab prime acreage fuel consolidation in the energy sector.

Diamondback could announce a deal with the closely held Endeavor as soon as Monday, according to people familiar with the matter, assuming the talks don’t hit a last-minute snag.

Endeavor, founded by wildcatter Autry Stephens, has long been one of the most prized businesses in the consolidating Permian Basin, the largest U.S. oil patch that straddles West Texas and New Mexico.

In striking a deal for Endeavor, Diamondback fended off competition from other parties including ConocoPhillips, some of the people said.

The stock-and-cash deal would value Endeavor at around $25 billion, and Diamondback shareholders would own the majority of the combined company after it closes, they said. Diamondback, based in Midland, Texas, has a market value of around $27 billion.

A pair of megadeals by Exxon Mobil and Chevron late last year helped prompt a flurry of deals in the sector. It is another sign that the U.S. economy is proving surprisingly resilient and that for many companies, it is business as usual even amid elevated interest rates.

Already, deal volumes in the U.S. are up 78% compared with a year earlier, according to Dealogic. Pricier debt and a tighter regulatory environment crimped merger and acquisition activity in 2023, but many advisers expect a busier 2024 as companies put their extra cash to work and rates appear poised to come down.

Diamondback went public in 2012 and has been one of the fastest-growing frackers, with its crude production growing around 50 times in the past decade to reach more than 260,000 barrels of oil per day. It has been adding to its inventory of wells through acquisitions.

A combination with Endeavor would grant the combined company top-tier status in the Permian, endowing it with nearly as much acreage in the basin as rival ConocoPhillips, and crude production likely eclipsing 400,000 barrels per day.

Endeavor’s Stephens is an 85-year-old billionaire who has drilled aggressively in West Texas for decades. He formed a sole proprietorship and drilled his first well in 1979 and turned that proprietorship into Endeavor Energy Resources in 2000.

He has since built it to have one of the most sought-after land positions of any oil-and-gas conglomerate in the world. Its operations cover roughly 350,000 net acres across the Midland Basin counties.

Endeavor has explored selling itself on and off for years, attracting interest from the likes of Shell, Exxon and Pioneer Natural Resources at various times, people familiar with the matter have said.

Stephens himself is known for his intense work ethic, frugal spending and encyclopedic knowledge of his company’s deals. He has been known to work late, show up to his offices on weekends and walk the building’s staircases for exercise. He sometimes flies on commercial flights despite his estimated fortune of nearly $15 billion.

While many American frackers have seen oil-well productivity decline as they have drilled through their best locations—a big factor in recent deals—Endeavor has the largest remaining inventory of top-tier oil acreage of any private Permian company, according to energy-analytics firm Flow Partners.

It has also been one of the most active producers in the region. The company was among private operators that kept drilling through the Covid-19 pandemic and helped U.S. crude production recover rapidly after a lull.

Following Exxon’s nearly $60 billion all-stock deal to buy Pioneer last fall, Chevron announced a $53 billion all-stock deal to purchase Hess the same month. Occidental Petroleum late last year revealed a $10.8 billion agreement to buy West Texas producer CrownRock. Last month, energy company APA agreed to buy smaller peer Callon Petroleum in a deal valued at about $4.5 billion including debt.

Elsewhere in the energy space, Southwestern Energy and Chesapeake Energy agreed to a merger in January that created one of the largest natural-gas producers in the U.S.

Biggest supplier of enriched uranium to American power plants says it has enough capacity to replace Russian imports

The head of the largest western supplier of enriched uranium used to fuel nuclear plants in the US says it has enough capacity to replace Russian supplies if Washington bans imports from the country.

Boris Schucht, chief executive of Urenco, said a US bill proposing to ban uranium imports from Russia would boost a multibillion-dollar effort by western nations to strengthen their nuclear supply chains by providing long-term certainty to market participants.

He said Urenco is also talking with the UK and US governments about potential investments in new plants to produce Haleu, a more powerful fuel used in advanced reactors that is currently only sold by Russia’s state-owned nuclear giant Rosatom.

Urenco has been awarded £9.5mn by the UK government to help develop Haleu at its Capenhurst site in Cheshire, as part of a £300mn strategy to “push [Vladimir] Putin out of the global energy market”.

“The market is seeking higher independence and, of course, clear political guidance. So the proposed legislation in the US would be helpful,” said Schucht in an interview.

“There are no constraints in the short term in replacing Russian materials in the western world. That is the simple message.”

Russia controls almost 50 per cent of global uranium enrichment capacity, a dominant position that has raised energy security concerns in the west following Moscow’s full-scale invasion of Ukraine. The US and crucial allies are now trying to rebuild their nuclear fuel supply chains, which were compromised by a collapse in demand after the Fukushima accident in 2011 caused a leak of radioactive materials.

Rosatom supplies more than a fifth of the enriched uranium fuel used to power the nuclear reactor fleets in the US and Europe. But the US, UK, Japan, France and Canada committed $4.2bn in December to government-led investments to boost domestic suppliers of uranium enrichment and conversion capacity.

Urenco, whose shareholders are the British and Dutch governments, as well as two German utilities, is at the forefront of these efforts and has agreed to expand three enrichment facilities in the US, UK and the Netherlands.

Schucht said demand has surged with western power plant operators trying to secure alternative sources of supply from Russia. Urenco’s order book has grown to $14bn, up from $12bn a year ago, he said.   

The Biden administration did not initially support banning Russian nuclear fuel following the invasion because the US fleet of 93 nuclear power plants were heavily dependent on the trade. But it is now advocating for a ban following two years of stockpiling by power plants and multibillion-dollar investments in the nuclear supply chain by western companies, including Urenco, France’s Orano and US-based Centrus.  

The US nuclear industry expects a ban on Russian imports of enriched uranium to be enacted sometime this year following a bipartisan vote in favour of the measure in the House of Representatives in December.

Timothy Fox, analyst at ClearView Energy Partners, said the Nuclear Energy Institute’s support for a ban suggests there is “now no meaningful risk to the continued operations” of the trade association’s power plant members.

Schucht said the nuclear sector is experiencing momentum not seen for 30 years due to the need to roll out emissions-free power to meet climate goals and safeguard energy security in the wake of the Ukraine war. The development of a new generation of so-called small modular reactors (SMRs), which are more efficient than standard reactors and are powered with Haleu, is also driving the industry, he said.  

Russia and China have both designed, built and begun operating SMRs while the US has failed to successfully complete a project.

Schucht said Russia and China are competing aggressively with western nations in the nuclear sector and achieving success in exporting technology and building plants overseas. The private industry in western countries had not fallen behind Moscow or Beijing in terms of designing new technologies but it had lost some capabilities in terms of constructing nuclear power plants, he added.  

“[Western nations] had a lot of suppliers in the nuclear sector that went bankrupt in the last 20 years so we lost in the western world certain capabilities and we are already in the process of building them up again,” he said.

Schucht said western companies had for years faced a “very strange competition” from Russia, which had been allowed to sell nuclear fuel below its cost of production while the Russian market remained closed to Urenco and other Rosatom competitors.  

“[Western companies] were never allowed to sell any material to Russia, so that’s a very strange situation. And we could see that they were offering products in the western world on price levels, which were below their cost base. The US has well understood that this is not fair competition.”

Russian access to satellite internet system would negate a major battlefield advantage for Kyiv

KYIV, Ukraine—Russian forces are using SpaceX’s satellite internet system near the front line in occupied parts of Ukraine, Kyiv’s military intelligence agency said, potentially undercutting a major battlefield advantage for Ukraine’s army.

Access to the system, known as Starlink, has enabled front-line Ukrainian forces to communicate via secure internet chat apps, allowing them to stay in contact without relying on cell or radio signals, which are easier to intercept.

In a statement posted to X—which, like SpaceX, is owned by Elon Musk—Starlink said the service didn’t work in Russia, but didn’t address whether it could be used in Russian-occupied parts of Ukraine.

“SpaceX does not do business of any kind with the Russian Government or its military,” the California company, which is formally known as Space Exploration Technologies, said in the statement. “Starlink is not active in Russia, meaning service will not work in that country.”

Although Starlink systems can’t be purchased in Russia, Ukrainian media reported that Russian forces have been purchasing the devices in third countries, and then bringing them to the front.

Andriy Yusov, a spokesman for Ukraine’s military intelligence agency, said Kyiv had intercepted radio communications from Russia’s 83rd Separate Air-Assault Brigade in the occupied Donetsk region that indicated they were using Starlink terminals.

“This is starting to become systemic,” Yusov said of the Russian use of Starlink in occupied territory.

Access to Starlink has been a politically charged issue since early in the war, when Musk decided to make the service available in Ukraine. Starlink is considered so vital to Ukrainian operations that, last year, when SpaceX said it could no longer fund access for Kyiv, the Pentagon agreed to pay to keep the service running. Private donors, governments and other organizations also pay for terminals.

Tension over Starlink access has continued. Last fall, a biography of Musk revealed that Ukraine, in 2022, asked for Starlink access for a surprise attack on Russian naval vessels in occupied Crimea. Musk refused, to the dismay of Ukraine’s government.

If Russia does indeed have systemic access to Starlink along the front, it would curtail one of Ukraine’s chief battlefield advantages at a difficult moment for Kyiv.

Ukraine’s counteroffensive last year failed to make significant gains, leaving Russia in control of roughly 20% of Ukraine’s territory. Moscow is now on the attack again, while Ukraine is suffering from a shortage of manpower and artillery ammunition. Last week, Ukrainian President Volodymyr Zelensky replaced his top general as part of an effort to reboot the country’s war effort.

The private equity firm, backed by LVMH, through a new vehicle called Crown Bidco, is launching a voluntary tender offer aimed at acquiring 36 percent of Tod's to delist the Italian luxury group and, if that fails, potentially merge.

MILAN — Diego Della Valle, chairman and chief executive officer of Tod’s Group, has not given up on the idea of delisting the company — this time with the help of LVMH chief Bernard Arnault.

On Sunday morning, the Italian luxury group — through Diego Della Valle, Andrea Della Valle, DI.VI. Finanziaria di Diego Della Valle & C. Srl and Diego Della Valle & C. Srl — disclosed it had entered an agreement with a newly incorporated Milan-based vehicle called Crown Bidco Srl. This is owned by LC10 International AIV LP, a private fund affiliated with L Catterton Management Ltd., backed by LVMH Moët Hennessy Louis Vuitton.

As per this agreement, Crown Bidco will launch a voluntary tender offer aimed at acquiring 36 percent, amounting to almost 13 million shares, of Tod’s SpA for a consideration of 43 euros per share, in order to delist Tod’s from the Milan Stock Exchange. This is a premium of 17.6 percent compared to the price of the shares on Feb. 9, the last trading day preceding the date of the communication of the deal.

On the date of the delisting, L Catterton will be granted a representation on the board of Tod’s.

Minority shareholder Delphine SAS, a fully owned subsidiary of LVMH, has agreed not to tender its 10 percent of shares on the date of the delisting, and will be granted governance and exit rights. Della Valle and Arnault have built a years-long relationship and the former is a member of the board of LVMH.

In the event of full acceptance, Tod’s will maintain 54 percent of the capital, L Catterton will indirectly own 36 percent and Delphine 10 percent.

In a statement, it was explained that the delisting is seen as “a precondition to ensure the pursuit of [Tod’s] future growth programs and consolidation,” allowing the group “to pursue its objectives in a market environment and legal framework characterized by greater management and organizational flexibility, with faster decision-making and execution times and also benefiting from reduced management and listing costs.”

Accordingly, Crown “is determined to promote and support this project, aware of the quality and experience of the management structure, the excellence of the production chain — which reflects in the great quality of the products — of the international network of stores of the group belonging to Tod’s.”

In light of these goals, the agreement includes the possibility of a merger if the delisting were not achieved, subject to the approval of the competent corporate bodies.

This is the second time Della Valle has attempted to delist the group, after a failed tender offer in 2022, which did not fulfill the 90 percent threshold.

The delisting was to enable the group to invest in each of the brands it controls — Tod’s, Roger Vivier, Hogan and Fay — in the medium and long term without the limitations of having to report quarterly results. The goal was to enhance the visibility of each label, strengthening their positioning in the high end of the market, and provide more operational autonomy.

The agreement revealed on Sunday is not entirely surprising as analysts have for quite some time speculated on a possible sale of the Tod’s Group, pointing to LVMH chairman and CEO Arnault as a buyer. This speculation mounted after LVMH increased its stake in Della Valle’s company to 10 percent for a total of 74.5 million euros in April 2021.

Diego Della Valle & C. Srl, a company controlled by the Italian entrepreneur, entered into a sale and purchase agreement with Delphine SAS, a fully owned subsidiary of LVMH, for the sale of 2.25 million shares of Tod’s SpA, representing 6.8 percent of the capital. LVMH is a longtime investor in Tod’s, as it already owned 3.2 percent.

The funds managed or advised by L Catterton Management represent approximately $35 billion of investments through three multiproduct platforms: private equity, credit and real estate. Founded in 1989, the group has made approximately 275 investments in some of the world’s most iconic consumer brands. L Catterton, for example, in 2021 took a majority stake in Etro.

Italian luxury group agrees deal to go private with LVMH-backed private equity firm L Catterton

Italian luxury bag and shoemaker Tod’s plans to go private in a deal with LVMH-backed private equity firm L Catterton, ending more than two decades as a public company on the Milan stock exchange.

Following the transaction, which was announced late on Saturday, L Catterton would have a 36 per cent stake in Tod’s while the Della Valle family, which currently controls the group, would retain its majority ownership with 54 per cent of the shares. 

L Catterton — which was created in 2016 through a partnership between a private equity firm, French luxury group LVMH and founder Bernard Arnault’s family investment vehicle — will pay €43 per share for its stake for a total of €512mn, a 18 per cent premium on the closing value of Tod’s shares on Friday. The deal values Tod’s at around €1.4bn excluding debt. 

LVMH will retain its 10 per cent stake in Tod’s after the transaction.

L Catterton said in a statement that the “delisting is a precondition to ensure the pursuit of the [Tod’s] future growth programs [sic] and consolidation . . . [with] greater management and organisational flexibility, faster decision-making and execution times”.

The private equity firm — which also has investments in fashion brands APC and Etro and high-end gym chain Equinox — listed German orthopaedic shoe company turned fashion favourite Birkenstock in New York in October in one of the year’s biggest IPOs.

Tod’s founding family first announced plans to delist in August 2022 as part of ambitions to turn the company around. Earnings at the group have been under pressure for much of the past decade as the popularity of its brands, which include its namesake Tod’s as well as Roger Vivier, Fay and Hogan, waned. However, the plan was scrapped after the Della Valle family failed to reach the ownership threshold they needed to take it private.

At the time, the family said it would be “more difficult” to achieve its long-term objectives as a public company “given the limitations” of listing requirements, which include publishing earnings updates.

Tod’s performance improved last year with the group announcing in January that sales increased 11.9 per cent in 2023 to €1.13bn, with all brands gaining in the double digits. 

The company’s shares have gained 18 per cent in the weeks since its stronger results were announced for a market value of €1.16bn, but remain below the takeover price offered by the Della Valle’s last year “despite clear improvements in Tod’s brand desirability and earnings momentum,” wrote Thomas Chauvet, analyst at Citi, in a note last month. 

“[This] highlights the difficulty for small luxury businesses to execute turnarounds under the scrutiny of public markets,” he added.

Acquisition would pave way for new developer to build plant as part of plans for revamping technology

The British government is seeking to take control of a key site in Wales earmarked for a nuclear power plant as part of wider plans to revamp nuclear technology for the UK.   

State-owned Great British Nuclear is in early-stage discussions with Hitachi, owner of the land in Wylfa in Anglesey, an island off north Wales, to buy the site with a view to finding a new private sector partner to develop a station there. 

The site has been in limbo since Hitachi abandoned plans to build a new reactor there in January 2019 after failing to strike a financial agreement with the British government. The Japanese industrial group eventually wrote off £2.1bn on the project. It also stopped work at a second site in Oldbury, South Gloucestershire.

Ministers are now determined to revive plans to use the Wylfa site for new nuclear power to help replace Britain’s current ageing fleet of nuclear reactors. 

About 14 per cent of the UK’s power was supplied by nuclear plants in 2022. All but one of the fleet is set to close by the end of the decade, however, just as demand for low-carbon electricity is set to rise as part of the shift away from fossil fuels. The government wants the UK to have 24GW of nuclear capacity by 2050, compared with almost 6GW today. 

Despite grandiose talk of a new generation of nuclear reactors, only one project is under construction — Hinkley Point C — and it is running billions of pounds over budget and several years late. A second proposed project at Sizewell in Suffolk has not yet reached its final investment stage. 

One minister confirmed that tentative negotiations with Hitachi had already begun although they acknowledged the deal might not be finalised until after the election later this year.

The land is thought to be worth about £200mn, but there are expectations that Hitachi could settle for a lower price given the site is fallow. 

Another figure close to the energy department said: “There are sensible conversations happening and Hitachi has no reason to hold out; they ought to take a cheaper price because the land currently has no value whatsoever.”

The site is one of eight areas in England and Wales that were earmarked for new nuclear power by the then-coalition government in 2010. It is next to the site of two former Magnox reactors that closed in 2012 and 2015, the last Magnox reactors in Britain.

Great British Nuclear was set up by the government in July last year to try to push forward new nuclear projects. Taking over the Wylfa land would pave the way for the government striking a deal with a developer to build a new plant there.

A consortium led by the US nuclear company Westinghouse and construction group Bechtel has proposed building a new plant there using Westinghouse’s AP1000 reactor technology. It is thought the site could also host small modular reactors. 

The Department for Energy Security and Net Zero said the government had ended the “stop-start” approach to nuclear and “launched a road map setting out the biggest expansion of the sector in 70 years”. 

It added: “Wylfa is one of a number of potential sites that could host civil nuclear projects. Whilst no decisions on sites have yet been taken, we are working with Great British Nuclear to support access to potential sites for new nuclear projects.”

Hitachi said: “We own two of the premier locations for nuclear new build in the UK and we will continue to speak with interested parties about the future for the sites.”

Kering shareholders need to be patient. On Thursday, the owner of Gucci and Saint Laurent presented the worst annual results of the big luxury groups. Yet it told investors it believed it had the right strategy and management in place. It also confirmed that group veteran Jean-François Palus was to remain the CEO of Gucci, after having initially been appointed as interim boss of the Italian luxury brand last year. Miss Tweed was first to report that fact.

Palus is neither a brand-builder nor a storyteller, but an operational manager, a trouble-shooter. The 62-year-old is happy to be in Milan as he benefits from an attractive tax deal for newcomers. At the same time Palus has long been the strongman of its CEO François-Henri Pinault. One year younger, the top boss owes his fellow Frenchman a lot. But gratitude should not come in the way of strategy.

It’s a shame Kering confirmed Palus as CEO of Gucci. There are so many talented executives out there who are more daring, know how to create buzz and surprise customers, managers who are not just financiers but have both the sensibility and drive needed to help Gucci reconquer the world. For Palus, it’s his last job before he leaves Kering.

John Galantic, the former chief operating officer and head of Chanel’s e-commerce operations based in the United States, would have been a strong candidate. Kering’s deputy CEO and head of Saint Laurent, Francesca Bellettini, could have recruited him easily. They both sit on the board of the luxury carmaker Ferrari, alongside Delphine Arnault, the CEO of LVMH’s Dior. Galantic did not reply to requests for comment.

It's no surprise that François Pinault, father of François-Henri, is concerned about the future of Kering, and particularly Gucci. Several industry sources said the 87-year-old was so worried he asked his old friend Serge Weinberg, (on Kering’s board since April 2022,) for advice on how to better manage things. Weinberg is a senior member of the French establishment who worked in politics before and helped François Pinault build the group, previously called PPR.

Kering and Weinberg vehemently denied this was the case and said François Pinault never meddled in Kering’s affairs. A spokeswoman for Pinault said: “François Pinault never asked Serge Weinberg to help or make suggestions on how to best improve the group’s performance.” However, one thing is certain: it’s pretty normal that François Pinault is worried about Kering and asking friends to help.

LOWER PROFITS

How long will Kering shareholders be willing to wait? Kering said it expected modest sales growth for Gucci this year, picking up in earnest only in the second half. Collections by the brand’s new designer Sabato De Sarno just started hitting the stores in recent weeks. The group warned that Gucci’s operating profits would drop again this year in mid-single digits after suffering a 13 percent drop in 2023 due to the brand’s investments in its repositioning.

That said, Kering also published some good news on Thursday. One of them is that Palus had started closing down some outlets for Gucci, a point Miss Tweed reported last week. Outlets allow brands to offload stock from previous seasons at a discount, but they harm a brand’s image and perception of exclusivity. Kering wants Gucci to be as desirable as Dior, Louis Vuitton, Chanel and Hermès but refuses to stop working with outlets altogether. Burberry has the same problem. Burberry and Gucci are both pursuing a “brand elevation” strategy but they are not willing to sacrifice outlets, which artificially boost sales. Dior, Louis Vuitton, Chanel and Hermès never do discounts aside from discreet “friends and family sales.”

The performance of Kering’s brands came in stark contrast to those of LVMH’s Dior, Louis Vuitton, Hermès and other brands. In the fourth quarter, Gucci’s revenues dropped 4 percent while sales at LVMH’s fashion and leather division rose 9 percent. Hermes was up 17.5 percent. In the 13 weeks to Dec. 31, Burberry’s revenues fell 7 percent. In tough economic environments, strong brands tend to become stronger and weaker brands lose market share.

Kering could be a self-help story for investors, but no real change appears on the cards. The group said Palus had hired a new head of production and was going to continue strengthening Gucci’s management team. But what the brand needs is a fresh pair of eyes and vision. A new CEO could have provided that. Referring to Gucci, Kering CEO François-Henri Pinault said the “reassessment stage is nearly complete.” That’s astonishing considering that the brand fired previous Gucci designer Alessandro Michele more than a year ago and sacked its CEO in July. They should have had ample time to decide what needs to be done.

Pinault said Gucci was a “cultural institution” and belonged in the Premier League. But what’s important is brand heat. As of now, De Sarno has not yet produced much buzz around Gucci. His designs are very elegant but his creativity to date has not been strong enough to get fashionistas super excited.

Gucci has put out classic-looking ad campaigns focusing on one of its new trademark colors - burgundy red - with celebrities holding a handbag like the Jacky. Today that’s not enough to get consumers rushing to Gucci shops. Pinault said the brand should “live and breathe luxury.” That’s great. But what’s the story? That’s what consumers want to know. It’s not yet been clearly expressed. Or at least, it’s not been strong enough to get people overwhelmed by the new Gucci.

Industry sources say wholesalers have been showing support for Gucci. But since the brand makes more than 90 percent of its sales in its own boutiques, what investors want to know is what the brand is doing to get customers to visit its own shops? There is not much visibility on that yet.

Gucci’s operating margin in 2023 reached 33.1 percent. When you compare that with 40 percent at LVMH’s Fashion and Leather goods division and Hermes’ record of 42.1 percent, up from 40.5 percent in 2022, you see there is room for improvement.

IMPROVEMENT

Kering’s shares have been depressed in the past few months, but they rose nearly 10 percent in the past week. Its annual results were as bad as investors expected. Many bought the stock betting things could only improve from here.

Gucci, which generates the bulk of Kering’s profits and sales, is not the only problem. Truth is: all of the group’s major fashion brands are in decline. Even Saint Laurent, which enjoyed stellar growth in recent years, suffered a 5 percent drop in sales in the fourth quarter. Again, Kering does not think there is a management problem here.

Bellettini, who runs all of Kering’s fashion and jewelry brands, does not want to give up her CEO role at Saint Laurent and Pinault has not forced her to find a replacement. “There is a lack of clarity on what Bellettini does,” one internal source at Kering told Miss Tweed. “She is involved in Gucci, in all the brands and also runs Saint Laurent, but many people think when you have so many jobs you cannot do any one properly.”

Saint Laurent has invested in the promotion of more expensive handbags, such as the Icare costing €4,000, while its traditional price range is around €2,000. Burberry made the same mistake. It recently launched much more expensive handbags in an environment when consumers were seeking value for money. These two brands depend on so-called “aspirational customers,” middle class people that do not have particularly deep pockets. These buyers have been tightening their purse strings in recent months and it shows in the numbers. The customer base of brands such as Chanel and Hermès are much more affluent. Hence, they are less affected by the current downturn.

Luxury executives believe wrongly that if you launch more expensive handbags, consumers will surely follow. It’s not always true. Some shoppers have been complaining on social media about the outrageous increase of Chanel handbags in recent years. The brand’s popular 2.55 handbag cost 1,850 euros in 2008 in Paris boutiques. The price is now €10,000. The same bag, the same design, the same leather. Not everyone is stupid enough to follow. Chanel sales advisers tell clients that the successive price increases of several thousands of euros in the past few years were introduced to make the bag more “exclusive” and make it more difficult for people to acquire them.

Chanel has invaded Hermès’ territory in terms of price point. Hermès’ Kelly and Birkin handbags used to start at around €7,500 15 years ago, they are now around €9,000. Hermes never sharply increased prices. Its price hikes were always in the mid-single digits. At the annual results presentation on Friday, Hermes CEO Axel Dumas joked about how people thought he was a fool not to have increased prices more. Now, he’s the one looking smart, he said, since demand for Hermès handbags has never been so strong. Hermès’ revenues in 2023 rose 21 percent, the highest growth rate of the industry.

Dumas said the economic environment remained uncertain, but business stayed brisk. “You don’t do 20 percent growth in a difficult environment,” Dumas pointed out with a smile. In his view, the years 2008 and 2009 were much more difficult in terms of market conditions. Dumas said Hermès increased prices by 7 percent in 2023 and planned to raise them by 8-9 percent in 2024 — the brand’s biggest increase ever. He said that reflected the inflationary environment and higher costs of production.

BALENCIAGA

Kering said it was focused on making its brands desirable. However, it did not address Balenciaga, its biggest problem brand and the fourth-biggest label after Gucci, Saint Laurent and Bottega Veneta in terms of revenue. After the PR fiasco of December 2022, investors expected Pinault to sack its CEO and ultimately part ways with Georgian designer Demna Gvasalia.

Investors will remember that, at the annual results last year, Palus predicted Balenciaga’s sales would recover in the second half of 2023. They never did, particularly in Europe, the Middle East and North America. Balenciaga is the biggest brand in Kering’s “Other Houses” division. The unit saw an 8 percent drop in revenue in 2023. It would appear that Kering is keeping its head firmly in the sand about Balenciaga. As Miss Tweed reported last week, Pinault continues to support Cedric Charbit, Balenciaga’s CEO, but it’s not clear how long that will last.

Looking forward, Pinault said the group was not planning to make acquisitions in either fashion or beauty but focus on existing brands. Kering overpaid for Creed last year, splurging €3.5 billion on the high-end fragrance brand. It also bought a 30 percent stake in Valentino, a brand that is not enjoying strong momentum either. And it plans to buy the rest in five years.

Over the course of the past few years, Kering took back from Coty the licenses for Bottega Veneta (BV), Balenciaga and Alexander McQueen after their license contract ended. It plans to launch Bottega Veneta’s first fragrances by the end of the year. We will have to see how that goes considering how little experience Kering has in beauty. The decision to launch a new line of perfumes for BV first is evidence that it’s currently the hottest in the group’s portfolio of available brands. Coty has the license to exploit Gucci until the end of 2028. Kering’s plan is to bring that business in-house. It thinks it can do a better job than the U.S. cosmetics group. Burberry thought the same when it bought back its beauty license from Interparfums in 2012. It threw in the towel a few years later and sold the license to Coty.