Op-Ed | Should LVMH Split Up?

When we raised the possibility of a breakup of LVMH Moet Hennessy Louis Vuitton SE a year ago, it was more of a PowerPoint idea. Now, cleaving apart the world’s biggest luxury group has moved off the drawing board and into investor discussions.

An extended debate about the best way to achieve a split continues. Whichever method is chosen, it would deliver more than LVMH’s current enterprise value of just under €360 billion ($377 billion). If the company wasn’t controlled by the Arnault family, the owner of Louis Vuitton and Dior would be irresistible to an activist investor. Indeed, the biggest question remains whether chief executive officer Bernard Arnault would take an ax to his empire.

Views are coalescing around separating the wines and spirits unit, Moet Hennessy. Producing and selling cognac and champagne is fundamentally different from encouraging consumers to buy pricey handbags. The presence of alcohol in the portfolio also prevents some investment funds from buying into the stock.

Bernstein analyst Luca Solca argues that the solution is distributing the shares in Moet Hennessy to LVMH investors. This would be similar to the route Cartier-owner Cie Financiere Richemont SA took in 2008, when the company exited its tobacco interests. Alternatively, Diageo Plc, which owns 34 percent of Moet Hennessy, could acquire LVMH’s stake.

LVMH could also eventually spin off cosmetics retailer Sephora, says Erwan Rambourg, global head of consumer and retail research at HSBC Holdings Plc. While the chain is growing fast and cash generative, it made an operating margin of about 10 percent in 2024, according to HSBC’s estimates, well below Louis Vuitton’s 50 percent. Synergies, even with LVMH’s beauty brands, will also be slim.

LVMH doesn’t need to offload any of its businesses for the money — it generated more than €10 billion of free cash flow last year. This is more about how the group is perceived by investors and the worth they ascribe to it.Though exiting Moet Hennessy and Sephora would shave close to €60 billion from LVMH’s enterprise value, according to HSBC’s estimates, this should be more than compensated for by LVMH’s multiple moving closer to that of International SCA. LVMH trades on about 12 times 2026 earnings before interest, tax, depreciation and amortisation, while Hermès’ multiple is 32 times, according to data compiled by Bloomberg.

Plus, assuming that both divisions became listed companies rather than sold, investors would still have the shares in Moet Hennessy and Sephora, which they could keep or sell. Richemont’s example is certainly compelling. Its valuation has benefited from being a pure luxury player.

But dismantling doesn’t have to stop there. Louis Vuitton, even on a 25 percent discount to Hermès — justified by the fact that though Louis Vuitton is more profitable, Hermès has more demand for its iconic handbags that it can meet — would be worth about as much as the whole of the group. So investors are getting the other brands such as Dior, Tiffany & Co. and Tag Heuer thrown in for free.

There’s no perfect way to cut it. Dior, the group’s second-largest “maison,” could theoretically sit with Louis Vuitton or bulk up the division housing other fashion brands, such as Celine and Loewe. The group also contains valuable property assets. These could in theory be listed separately as a real estate investment trust. Flexibility is enhanced by the fact that LVMH has little financial debt.

Questions around LVMH’s structure need to be driven primarily by valuation. But disassembling the group might help avoid potential pitfalls when it comes to succession, thrown into sharper relief in the coming years. Arnault turns 76 next week, and all his five children have senior roles in the business. Eventually, he will have to pick one to be CEO or divide responsibilities. If he chose the latter, then having the next generation lead separately listed companies might be cleaner.

There would be additional costs, and there might also be some loss of clout when it comes to securing the best designers and store locations. These drawbacks are surmountable. The bigger uncertainty is whether Arnualt would really split the company he spent 40 years building.

But recent comments have the market wondering.

When questioned by analysts as to whether he was looking at strategic options for DFS, the operator of duty-free stores, primarily in Asia, Arnault declined to comment. This has been widely interpreted as confirmation that a review is underway.

Then there is Moet Hennessy. LVMH’s longtime chief financial officer Jean-Jaques Guiony recently became CEO of the division, with Alexandre Arnault appointed as his deputy. Arnault senior told analysts that offloading the division was “not on the agenda.” He also said the new team had two years to turn the business around. What happens when this time is up?

It’s still a leap from these comments to a full breakup. But LVMH’s fourth-quarter performance trailed that of Richemont and Hermès. That has helped both outperform LVMH since the turn of the year.

Hermès’ market capitalisation touched €300 billion in mid-February, though it has slipped to about €285 billion since. Arnault tried to buy Hermès more than a decade ago. It not only escaped his clutches but is now edging closer to LVMH’s valuation. That may focus his mind on whether LVMH’s conglomerate structure, so long a source of strength, is now a hindrance.

It might not be a hedge fund that forces a rupture at LVMH, but Arnault’s desire to win.

By Andrea Felsted

Learn more:

LVMH Growth Boosts Luxury Outlook

The sector bellwether beat expectations with a 1 percent rise in fourth-quarter sales, as demand for fashion and leather goods picked up, adding to hopes the luxury market has turned a corner.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.