Value loss and fear of a potential takeover for a CEO-less Burberry

The abrupt departure of Marco Gobetti from the helm at Burberry has left the luxury group facing a circa one billion pounds’ worth of wind-out market value and the fear of a potential takeover.

The FTSE 100 closed lower on Monday dragged by Burberry, which slipped to the bottom of the London’s benchmark index after the resignation of its chief executive officer, Marco Gobetti. In fact, Burberry shares tumbled 8.1 percent after the luxury group said its CEO would step down at the end of the year. As a result, Burberry lost nearly one billion of its stock’s value yesterday.

Is there a potential takeover in Burberry’s books?
“This is a negative for Burberry and a source of uncertainty until we get clarity on the new CEO,” Citi analysts said commenting on Gobetti’s departure news.
Market experts also highlighted potential uncertainty over creative director Riccardo Tisci, who had followed Gobbetti to Burberry. The already fragmented ownership of the company makes it more vulnerable to a potential takeover, adding to the concerns raised over weak leadership.

Meanwhile, others in the industry wonder whether Burberry may now become a takeover target as the luxury sector consolidates; the quintessentially British powerhouse has offered a weaker performance compared to its peers. Data compiled by Refinitv shows that since Gobbetti took the reins in 2017, return for Burberry shareholders has been 47 percent, significantly below other luxury heavyweights such as Kering (PRTP.PA), LVMH (LVMH.PA) and Moncler (MONC.MI).

Analysts covering the stock at UBS currently recommend sharing Burberry’s shares, arguing that recent improvements in trading are “too insignificant to signal a sustained trend” amid “increasing doubts about the strength of its underlying performance”. In a note published last week, the investment bank noted that Burberry jumped by 24.1 percent in the year to date, underperforming the wider European luxury sector which was up 26.7 percent.

Gobetti’s legacy: Less discounts and sales
Gobbetti came in at Burberry to replace Christopher Bailey in 2017. Gobbetti sought to get more Burberry products to be sold at higher prices and rely less on discounts and sales during his tenure. He also strove to revamp Burberry’s marketing and to focus more on young wealthy consumers.

This strategy has paid off, even despite the pandemic. Burberry said in May that sales were recovering from the coronavirus crisis, partly thanks to a rebound in China. To this point, Sophie Lund- Yates, analyst at Hargreaves, pointed out that Burberry was set to come out of the pandemic in better shape than it had entered the crisis, helped precisely by its repositioning at the more exclusive end of the luxury chain.

On the upside, Citi expects Gobbetti’s key initiatives will remain in place for at least another year and be executed by an interim CEO, possibly CFO Julie Brown, pointed out Reuters.