Burberry’s CEO Exit Points to Talent War, Not Takeovers

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Monday brought disappointment for designer label

Burberry,

BURBY -7.97%

and for deal makers in the world of European luxury goods. A top-level poaching incident may strike two of the most commonly cited listed takeover targets off the industry shopping list for a while.

Burberry said Chief Executive

Marco Gobbetti

will leave in December to join Italian shoemaker

Salvatore Ferragamo.

SFER -2.33%

He has been in the job less than five years and is stepping down while the British brand’s turnaround is still only half complete. During Mr. Gobbetti’s tenure, Burberry’s shares have returned 9% annually, lagging bigger brands such as Hermès and Prada.

Burberry’s board, which only heard about Mr. Gobbetti’s plans over the weekend, must now hunt for a new boss as well as reassure investors that lead designer

Riccardo Tisci

won’t follow him out the door. The company’s shares fell 8% in morning trading in London.

Burberry Chief Executive Marco Gobbetti will leave in December to join Italian shoemaker Salvatore Ferragamo.



Photo:

Dave Benett/Getty Images for Burberry

Both Salvatore Ferragamo and Burberry have long been considered takeover targets, although the former is family-controlled. Some shareholders are betting that the pandemic will compel weaker brands to sell up to one of the large, cash-rich European luxury houses, such as Gucci-owner Kering. The hiring of one of the top CEOs in the business suggests that the Ferragamo family is serious about turning the brand around by themselves. The company’s shares fell 2% despite the positive hire.

The timing is bad for Burberry, which is most famous for its checked trench coats. Several years into a makeover, the brand was beginning to show signs of improvement. Sales fell 10% over the pandemic-struck 12 months through March, but the label has been selling more items at full price—a sign that its image is improving among shoppers. Now, investors must wait for a new boss to be found and see whether he or she changes direction.

The uncertainty will likely weigh on Burberry’s share price, in theory making it a more appealing takeover target. But the stock still trades at 24 times projected earnings and would be a mouthful. Add a 30% takeover premium to the value of its equity and Burberry comes with an £11 billion price tag, or $15.3 billion at current exchange rates—a risky bet considering its still-unsettled outlook. An opportunistic buyer could have picked it up for a lot less last year.

Meanwhile, Salvatore Ferragamo’s move to hire Mr. Gobbetti suggests that the pandemic has caused a rethink among some independent luxury brands. To attract a boss of Mr. Gobbetti’s caliber, the controlling family would have had to give him assurances that they wouldn’t meddle with his strategy. Underperforming names now recognize that they need to change to compete against giants such as

LVMH Moët Hennessy Louis Vuitton,

the world’s biggest luxury company, whose hand has been strengthened by the crisis.

Investors may still hope that Salvatore Ferragamo will be polished up and sold in a few years’ time at a higher valuation. For now, though, the tougher outlook for smaller luxury brands points to a fight for the best executives rather than major deals.

Write to Carol Ryan at carol.ryan@wsj.com

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