AP Series-1: Tensions among the watchmaker’s shareholders
By Astrid Wendlandt
09/10/22
Audemars Piguet
Audemars Piguet (AP) is one of the biggest success stories in luxury watches of the last decade. Founded in 1875, AP is the last historical watchmaker of its size still in the hands of its founding families. However, this may not last forever as some of its minority shareholders are exploring a possible sale of their holdings, Miss Tweed has learned. In a few years, LVMH could end up being the ultimate owner, sources with first-hand knowledge of the matter said.
AP has never been stronger in terms of cachet, sales and profitability. It commands the highest premiums on the second-hand market, together with Rolex, Patek Philippe and Richard Mille. Now is the best time to cash in, some shareholders believe, as the brand is at a crossroads. Its longstanding CEO, François-Henry Bennahmias, is due to leave next year and a replacement has not yet been found, industry sources said.
Jasmine Audemars resigned in August after nearly 30 years as chairman of the board. The 82-year-old guardian of the temple was replaced by ex-Tiffany boss Alessandro Bogliolo, a choice that surprised many including Bennahmias himself, sources close to the company said. Bogliolo’s specialty is not watches. He has experience managing luxury brands and selling them at the highest price possible. The Italian businessman did a good job securing the sale of Tiffany to LVMH in 2020, pocketing more than $40 million in the process.
Bogliolo, who is due to start on Nov. 11, was not hired by AP not to steer the watchmaker -- he is not planning to move to Switzerland anytime soon -- but to help some of its minority shareholders monetize their stake, sources with first-hand knowledge of the matter said. Bogliolo is AP’s first chairman since the 1940s who is not a member of either founding family, Audemars or Piguet. This fact was confirmed by the company itself.
One person upset with the nomination of Bogliolo is Olivier Audemars, vice president of the board, several sources close to him and the company said. Knowing the Italian’s reputation for selling luxury businesses, he feels the company has let the wolf into the sheep pen. Olivier Audemars is not at all interested in letting go of his stake.
Olivier Audemars, 62, has two daughters under 21 who are not yet ready to pick up the mantle but they may wish to someday. Olivier Audemars is in fact a Piguet, his mother having married an Audemars who had nothing to do with the watchmaker. Olivier Audemars did not reply to Miss Tweed’s request for comment.
Jasmine Audemars and her sister Yveline, who partly lives in Canada, are AP’s biggest shareholders, with a stake of more than 30 percent, sources close to the company said. As neither have heirs, their stakes will go to the Audemars Piguet Foundation, which supports environmental projects. What will happen to Jasmine Audemars’ voting rights after she resigns as chairman of the board next month remains to be seen. The answer to that question will be critical to AP’s future. The company has declined to comment for this report.
CROSSROADS
Since AP is at its peak, the question is: Where does it go from here? Famous for its bestselling Royal Oak timepieces, AP is now roughly the size of Patek Philippe, according to Swiss broker Vontobel. The two luxury watchmakers are behind Rolex, which is king, and then Omega and Cartier in terms of turnover. AP is expected to make some 1.8 billion Swiss francs in sales this year versus 1.6 billion in 2021. Unlike Patek, which mainly sells through distributors, AP sells principally through its own boutiques. The difference in their business models makes it difficult to compare the two.
AP has the brand power to overtake Patek Philippe and propel itself into an even bigger league. But do its shareholders want that? Jasmine Audemars and Olivier Audemars favor letting the company grow naturally, without any external boost, sources close to the company say. They never expected it to become as big as it has done, and with their conservative, patrimonial views, they have always said they want AP to remain independent and family-owned.
“I never imagined that we would pass the billion mark when I took over as chairman of the board of directors,” Jasmine Audemars told Le Temps newspaper when she announced her departure in August. Back then, in 1994, the company made sales of 90 million Swiss francs, she said. “We are a family business, totally independent. We don't want to be dependent on analysts making crazy projections, which then influence stock values. We want to live our lives as we see fit and we are ready to face tougher times. That's how it was with our predecessors and it will be the same with our successors.”
But some of the company’s other shareholders think differently; they believe AP has the potential for much more growth.
This year, the brand will produce some 50,000 watches, up from 45,000 in 2021, having abandoned an earlier self-imposed limit of 40,000. AP is spending hundreds of millions of euros on a new production site, which is due to bring under one roof many of its different suppliers – just as former sister brand Jaeger-LeCoultre did a few years ago. Once the new production site is up and running in 2024, production at full capacity could reach 70,000 timepieces by 2025.
In the next five to ten years, AP could decide to raise that number to 100,000 or even 200,000. That would require significant investment, which not every AP shareholder is keen to make. So now is a good time to sell and let in a new investor. This view is shared by Oliviero Bottinelli, a member of AP’s board who runs the brand’s business in Asia, several sources close to the company say.
Oliviero Bottinelli’s influence over AP’s affairs and power within the board has grown, they said. His father, Pierangelo, a former investment banker, inherited a stake in the company after helping Audemars Piguet survive financial difficulties a few decades ago. “It would indeed appear that the Bottinellis’ voice has become louder,” one of the sources said. It was the Bottinellis who pushed the choice of Bogliolo on Jasmine and Olivier Audemars, the sources added.
Another key AP family shareholder is Singapore’s Sunil Amarasuriya, whose daughter Shanya, 31, replaced him on the board this year. Shanya, known for having strong opinions about AP’s future and sharing them with the board, now sits on AP’s audit and investment committees.
The Amarasuriya family owns the B.P. de Silva group of companies, with interests in watch distribution, jewelry, tea and other areas. In the 1970s, it was AP’s main distributor in Singapore. The family later gave up its distribution partnership in exchange for a stake in AP. Together with the Bottinellis, the Amarasuriyas are mulling a sale of their stake, several sources said. But it seems financial advisers have not yet been appointed.
Another small stakeholder is Steven Petruzzello, son of Irène LeCoultre of the watchmakers of the same name. His position is unclear. Unlike the Bottinellis and the Amarasuryias, he’s got watchmaking in his blood, which may incline him to hold onto his stake. Last century, Jaeger-LeCoultre and Audemars Piguet shared suppliers and even developed some movements together. AP used to own 40 percent of Jaeger-LeCoultre. But in 2000, it lost a bidding war to Richemont and the Geneva-based group now owns the brand.
FIRST RIGHT OF REFUSAL
All of AP’s five shareholders have first right of refusal if one or several wish to sell all or part of their stakes. Industry sources estimate that the Amarasuriyas and Bottinellis together own over 20 percent of Audemars Piguet. Using the company’s projected revenue estimate for next year of close to 2 billion Swiss francs, industry analysts estimate AP is worth at least 6-7 billion Swiss francs. For argument’s sake, 20 percent of that amount would be some 1.2 billion Swiss francs, which at today’s exchange rate is €1.24 billion.
That is a sizeable sum for Jasmine Audemars, Olivier Audemars and Steven Petruzzello to find if they want to buy out the other two shareholders. But they have several options.
One would be for the company itself, i.e. Audemars Piguet, to take on debt and buy their stake to keep any external investor out. The three shareholders wanting to preserve the company’s independence would probably favor this. But in light of the major investments AP needs to make in the future, this plan might not be easy to realize. As the global economy worsens, the credit market is expected to tighten further. Interest rates will go up, raising the cost of borrowing.
Another option would be to invite Rolex to chip in. The industry leader is one of the most profitable companies in Switzerland and it belongs to a foundation, making it impregnable. But that might not be simple either. Rolex is happy to remain a stand-alone company, industry sources say. It has enough on its plate producing an estimated one million watches a year while maintaining quality.
LVMH
The likeliest external investor is LVMH. The French group has made no secret of its wish to acquire a major watchmaker to complete its stable of “hard luxury” brands. Since ownership has been transferred to the younger generation at independent brands Patek Philippe and Richard Mille, Audemars Piguet is the last big target available.
Selling to LVMH may be the last thing Steven Petruzzello, Oliver and Jasmine Audemars want but it could happen at some point, industry insiders predict. “I think LVMH will do anything it can to buy Audemars Piguet,” one senior executive at the group said on condition of anonymity. The group owns TAG Heuer, Zenith and Hublot but these brands are much smaller than AP.
Taking on AP would put LVMH in the big league. Already strong in jewelry with Tiffany, Bulgari and Chaumet, it could grow even larger than the current watch and jewelry industry leader Richemont, owner of jewelers Cartier and Van Cleef & Arpels and watch brands Vacheron Constantin, IWC and Panerai.
Richemont is unlikely to make a move on Audemars Piguet but you never know. LVMH appears more motivated. The French group’s watches and jewelry division made nearly €9 billion in sales in 2021 while Richemont generated more than €11 billion from jewelry and €3.4 billion from watches in the fiscal year to March 31, 2022. That’s €14.4 billion in revenue in total from “hard luxury” brands.
When it comes to hunting, don’t forget that patience is one of the prime qualities of Bernard Arnault, CEO and controlling shareholder of LVMH. Arnault may be satisfied with a minority stake to begin with but after a while, he starts surreptitiously creating discord and turning the shareholders against each other. Eventually, they grow desperate and throw in the towel. That’s how Arnault buys them out.
Every family has weaknesses and baggage and the 73-year-old tycoon is a past master at exploiting them. He played that game at Hermès, pitting different clans of the family against each other, although after some time family shareholders united against him. Arnault takes a very long-term view. This is partly why LVMH is so successful and highly valued.
Arnault has big ambitions for the group’s watch and jewelry division. It is no coincidence that the three sons from his second marriage work there now. Alexandre, 30, the eldest, is No. 2 at Tiffany, in charge of products and communication. Fréderic, 27, runs TAG Heuer while the youngest Jean, 24, works for Louis Vuitton watches and is involved in many areas from strategy to marketing.
Earlier this year, to mark the 20th anniversary of the Tambour model, Jean Arnault helped Louis Vuitton hire its first ambassador for watches, the American actor Bradley Cooper. Jean Arnault is also working on resuscitating Daniel Roth, a forgotten watch brand LVMH inherited when it acquired Bulgari in 2011, Business Montres and Handelszeitung reported.
Watchmaking is very much on the minds of the Arnault family, and Audemars Piguet in particular is in their sights.