Burberry and Salvatore Ferragamo Look Ahead

Burberry CEO Transitions to Salvatore Ferragamo

Burberry (BURBY) and Salvatore Ferragamo (SFRGY), two European luxury goods companies which have long been takeover targets for larger companies, may be off the block…at least for now. Over the weekend, Burberry CEO Marco Gobbetti announced plans to leave for a job at Salvatore Ferragamo. Gobbetti will depart in December even though his turnaround of Burberry is only halfway complete. His move leaves Burberry without a leader and signals that Salvatore Ferragamo, which is family owned, is committed to executing its own turnaround.

Some investors had been betting that the pandemic would force weaker brands to sell to larger rivals with a lot of cash. Kering (PPRUY), which owns Gucci and other labels, has been named as a potential suitor for Burberry and Salvatore Ferragamo in the past. However, this may not come to pass in the near term given the developments at the two companies.

Burberry Needs a New Leader

The Burberry board, which heard about Gobbetti’s decision only this past weekend, has to find a replacement and assure investors that Riccardo Tisci, Burberry’s lead designer, won’t exit too.

Gobbetti’s impending departure comes as Burberry was seeing signs of growth again after the pandemic. Sales declined 10% in the 12 months through March but recently the brand has been recovering.

It is not clear how a new CEO might change the direction of the company. That uncertainty could weigh on shares, making it more attractive to suitors. Still, with the stock trading at 24 times projected earnings and a probable 30% takeover premium, it could be a more than $15 billion target.

Salvatore Ferragamo Willing to Give Up Some Control

For Salvatore Ferragamo, hiring Gobbetti is a signal that the family which controls the company is willing to give up some decision-making power if it means improving the brand. In order to poach Gobbetti, the controlling family likely provided him with assurances that he would have the freedom to pursue his own strategies.

A number of smaller luxury brands are realizing that they need to change direction to compete with their larger counterparts. At the moment, companies like Burberry and Salvatore Ferragamo are working to attract top talent rather than pursuing acquisition deals.

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