LVMH Moet Hennessy Louis Vuitton (MC.FR) Monday agreed to take a controlling stake in Italy's Bulgari SpA (BUL.MI) in a deal valuing the company at around EUR3.68 billion, adding to the French firm's watch and jewelry brands and underscoring the strength in the luxury sector.

It's the latest acquisitive move by LVMH, which has already swallowed up a string of competitors such as Gucci, Fendi and Donna Karan, and last year disclosed it held a 17% stake in rival Hermes International SCA (RMS.FR) which it has since upped to 20%.

LVMH will issue 16.5 million new shares in exchange for the 152.5 million Bulgari shares currently held by the Bulgari family, which owns 50.43% of the firm, Bulgari said in a statement. The French firm will also submit a public offer at EUR12.25 a share for the stock held by minority shareholders, valuing the entire deal at around EUR3.68 billion, according to Dow Jones Newswires calculations.

LVMH offered a 61% premium to Bulgari's Friday closing price of EUR7.59 and the shares of the Italian firm rose 60% in early trade Monday. The deal is "in the high range for luxury-sector multiples, which should help the whole sector," said a Milan-based analyst. Shares in Italian peer Tod's SpA (TOD.MI) were up 4% at EUR76.25, while in London Burberry Group PLC was the second highest riser on the FTSE 100 index, up 4.2% at 1206 pence. LVMH shares were down 1% at EUR110.2.

Bulgari said Paolo and Nicola Bulgari will remain chairman and vice chairman of the Bulgari board of directors as part of the deal. The Bulgari family will be entitled to appoint two representatives to the LVMH board of directors and Francesco Trapani, Bulgari's chief executive, will join the executive committee of LVMH.

Trapani, who is also a member of the Bulgari family, will head up an enlarged LVMH's jewelry and watches business, which already includes Zenith and Hublot as well as TAG Heuer. The division saw the strongest revenue growth of LVMH's main business groups last year, posting a 29% rise in revenue to EUR985 million, but it is by far the smallest division accounting for less than 5% of LVMH's total revenue.

"We found in Bernard Arnault and the group he has built all the elements that are required to guarantee the long term future of Bulgari," Paolo and Nicola Bulgari said in a statement. They added the corporate culture at both firms is "completely identical," a point also stressed by LVMH Chief Executive Bernard Arnault.

The transaction comes as the luxury goods market is rebounding sharply from a deep trough during the recession. Bulgari reported a 21% jump in quarterly revenue in January, helped by strong sales in Japan, pushing its annual sales well over EUR1 billion.

Watch sales account for about a fifth of Bulgari's revenue while jewelry accounts for nearly half. Trapani aims to push more aggressively into China this year.

The agreement with the Bulgaris contrasts with LVMH Chief Executive Bernard Arnault's standoff with Hermes International SCA (RMS.FR). LVMH shocked the family-owned luxury brand last year when it disclosed it controlled 17% of the smaller company, a stake LVMH boosted in December to about 20%.

Arnault recently described the Hermes investment as peaceful but not passive, while Hermes' Chief Executive Patrick Thomas said last week that LVMH's stake is not "desired" nor "desirable". In response to LVMH's move, the Hermes family members plan to regroup a majority of the company into a family-controlled holding company to lock up the firm from any takeover intent.

-By Inti Landauro, Dow Jones Newswires; +33 1 4017 1740; inti.landauro@dowjones.com

(Guy Castonguay in Milan and Elizabeth Holmes contributed to this story.)
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