Analysts said the price was high but justified by the savings

France's LVMH will take over Italy's Bulgari in a € 3.7 billion ($5.19 billion) deal to add lustre to the No.1 luxury group's jewellery business and bring it more exposure to emerging markets. The offer, which priced Bulgari's shares at a 60% premium to its average level over the last month, could herald the return of consolidation in the luxury market, which bounced back from the 2009 slump much faster than analysts expected.

Bulgari will benefit from LVMH's global retail network, improve margins through costsharing and help the luxury group close the gap with bigger watch and jewellery companies Richemont. Analysts said the price was high but justified by the savings. The acquisition of family-controlled assets, which did not happen often, usually meant buyers had to pay a sizeable premium to the market to convince families to sell.

The deal values Bulgari on a ratio of enterprise value to sales of about 3 times, which compares with other potential takeover candidates Burberry which is on 2.7 times and Tiffany which is on 2.3 times using forward sales estimates . “This multiple is in line with historic deals in the sector and the recent acquisition of (online luxury fashion retailer) Neta-porter by Richemont,” which was roughly 3 times enterprise value to sales, Deutsche Bank said in a note. Founded by billionaire Bernard Arnault, LVMH is built solely on acquisitions.

Its brands now include Louis Vuitton handbags, Chaumet and Fred jewellery, Celine and Kenzo fashion, Hennessy cognac and Moet & Chandon champagne. “Bulgari is one of the best known jewellery brands in the world, with lots of potential to grow on the back of LVMH's global distribution reach and financial muscle,” Bernstein luxury analyst Luca Solca said. The deal will double LVMH's watch and jewellery business to make up 10% of its sales and about 6%of operating profit, analysts estimated.

Analysts believe rival luxury groups could embark on a fresh consoldation wave, encouraged by the strong sales visibility they are getting from big emerging luxury markets such as China. “We believe 600 million new consumers are set to enter the (luxury ) market by 2025. In our view, the luxury goods market could grow at 2.2x GDP to 2025, becoming a trillion dollar industry,” Goldman Sachs said in a note on Monday.

“We forecast average 2011-14 top-line growth of 16% across our luxury coverage.” Bulgari, which was established in 1884, had long been seen as a potential target having weakened its finances by embarking on big store investments when its sales were falling.