LVMH Moet Hennessy Louis Vuitton SA plans to acquire Bulgari SpA for about 3.7 billion euros ($5.2 billion) to add the world's third-largest jeweler in what would be its biggest acquisition in at least a decade.

The largest luxury-goods company agreed to purchase the Bulgari family's 50.4 percent stake for 1.87 billion euros in stock and will then make a tender offer for the rest, according to a joint statement distributed by the Italian Exchange today. The acquisition represents a 61 percent premium to Bulgari's March 4 closing share price in Milan.

Chief Executive Officer Bernard Arnault has built LVMH by snapping up brands from Donna Karan International Inc. to Glenmorangie Plc. LVMH owns 20.2 percent of Hermes International SCA after purchasing a stake without the knowledge of the company's founding family. He's buying the maker of $18,900 Sotirio Bulgari retrograde date automatic watches as the Rome- based company's sales growth trails larger rivals including Cie. Financiere Richemont SA. Bulgari is adding lower-priced items and high-end watches as demand rebounds after the recession.

"We see this as a great deal for Bulgari shareholders," Alessandro Migliorini, an analyst at Helvea, wrote today in a note. "In contrast, it remains to be seen whether LVMH's financial muscle and organizational strength will suffice to extract sufficient value to justify the acquisition price."

Eoin Treacy's view In bidding for Bulgari, LVMH is assuming that the growth trajectory which has spurred investor demand over the last two years is set to continue. At the Shanghai Expo last year it was interesting to see the Italian pavilion where shoes, bags and clothes were highlighted above Italy's many other attributes. China is a major growth market for luxury goods and most brands have aggressive plans to expand their operations in regional China.

Luxury brands' strong performance following the global financial crisis demonstrates their leverage to the growth of the global middle class. (Also see Comment of the Day on December 3rd 2010).

Coach, Tiffany, Compagnie Financiere Richemont, LVMH, Swatch Group, Christian Dior, Remy Cointreau and Hermes share a similar chart pattern. They have all hit medium-term peaks in early December and have mostly unwound overbought conditions relative to their respective 200-day MAs which is a similar characteristic to the MSCI Far East Ex-Japan Index above.

PPR has also pulled back to test the 200-day MA but an upward dynamic is required to indicate demand is returning in this area.

Polo Ralph Lauren rallied impressively in early February and now appears to have entered a period of consolidation.

Essilor International consolidated below €50 from June 2010 and successfully broke upwards a month ago. A sustained move below the 200-day MA, currently near €48.50 would be required to question potential for additional upside.

Luxottica found support above the MA three weeks ago and is rallying towards the January high. A sustained move below €20 would be required to question the consistency of the medium-term uptrend.

Burberry continues to post a consistent progression of higher reaction lows. It found support near 1000p in late January and has since rallied to post a new high. It would be best bought following the next reaction to test the progression of higher lows.