LONDON, United Kingdom — When Puma confirmed on Wednesday that François-Henri Pinault had stepped down from its board of directors, it revived speculation that parent company Kering could be preparing to sell the German sportswear brand.
The decision by Pinault, Kering’s chairman and chief executive, came as Puma raised its 2017 earnings forecast, pushing the company’s stock up by as much as 5.1 percent to its highest level in almost a decade, following the release of preliminary first quarter results, which showed sales had risen by 15 percent to €1 billion (just over $1 billion).
Rumours of a Puma sale have persisted for years. And while Pinault told the Financial Times last year that Kering would hold onto its majority stake until at least 2018, Wednesday’s announcements could mean Kering is edging closer to unloading Puma, presenting a range of potential buyers with a promising acquisition target.
Certainly, much of that interest could come from China, according to Luca Solca, head of luxury goods at Exane BNP Paribas. “The Chinese newfound fascination with fitness has boosted sales and sales prospects of major athletic and lifestyle companies,” he says. “Possible bidders include Chinese lifestyle brands like Anta, [as well as] American apparel groups like PVH or even PE — who are the least likely, in my view, to pay the highest price.”
Solca says Kering faces the choice of disposing of Puma now with a high multiple and low profit margins, or acting later with higher margins and lower multiples. “The acid test is when they will find a bidder who is prepared to spend more than they paid for it ten years ago.”
Kering could be interested in divesting from Puma to focus on its luxury business.
According to Mario Ortelli, head of the luxury goods sector at Sanford C. Bernstein, “Kering could be interested in divesting from Puma to focus on its luxury business.” Indeed, the sportswear brand has always stood apart in Kering’s otherwise luxury-heavy portfolio. The French conglomerate acquired its majority stake in Puma in 2007 as part of a wider strategy to broaden its holdings beyond luxury. At the time, Puma was valued at €5.3 billion ($5.6 billion) but the company has since struggled to drive significant growth and is currently in its fourth year of a turnaround strategy put in place by chief executive Bjoern Gulden.
“[Puma’s] acquisition was supposed to mark the start of an entirely new development into the lifestyle market, a complement to Kering’s luxury portfolio,” wrote Solca in a December 2016 column for BoF. “However, synergies between Puma and the group’s luxury portfolio were never expected, and the move has actually neutralised much of the possible value created by [Kering's] progressive refocusing on luxury and away from retailing.”
Jean-François Palus, group managing director of Kering, will remain on the Puma board as chairman, and a statement from Puma confirming Pinault’s exit from the company’s board of directors stated that the decision was driven by efficiency: "Six members, amongst them two employee representatives, are sufficient for an effective and flexible steering of the company and also avoids an unnecessary cumbersome decision-making process. The last six years have shown that a smaller board aligns better with the company’s size. We may also not forget that a smaller administrative board also enables the company to save costs.”
Puma will report its full first quarter results on April 25.