Burberry plays hard ball over perfume deal

(Reuters) - British luxury brand Burberry (>> Burberry Group plc) has ratcheted-up the pressure on fragrance partner Interparfums (>> INTERPARFUMS) (>> Inter Parfums, Inc.) to offer a new agreement on more favourable terms, by serving notice on the French firm to terminate their current deal.

(Reuters) - British luxury brand Burberry (>> Burberry Group plc) has ratcheted-up the pressure on fragrance partner Interparfums (>> INTERPARFUMS) (>> Inter Parfums, Inc.) to offer a new agreement on more favourable terms, by serving notice on the French firm to terminate their current deal.

Interparfums, the exclusive worldwide license for Burberry's fragrance and beauty products, has been in talks with the British firm since last December.

Burberry said on Tuesday the discussions were continuing, with their outcome "uncertain" and also said it had served notice of its intention to terminate the license agreement with Interparfums with effect from December 31 2012.

Upon termination, Burberry would pay Interparfums approximately 181 million euros ($221.5 million), it said.

Analysts estimate Burberry's fragrance business accounts for only about 2 percent of the British group's revenue but for about half of Interparfum's net sales.

Shares in Interparfums closed down 6 percent at 17.75 euros on the Paris Stock Exchange and were trading down about 3 percent at $16.51 on the Nasdaq, while shares in Burberry closed down 1 percent at 1,222 pence on the London Stock Exchange.

Analysts said Burberry's move was prompted by a July 31 deadline for the firm to exercise an option to buy out Interparfums' license.

"With today's announcement, Burberry maintains flexibility to negotiate further with Interparfums until the end of the year," said Citi analyst Thomas Chauvet.

Interparfums CEO Philippe Benacin told Reuters the chances of securing a new deal with Burberry were "50-50".

He said if no deal was struck Interparfums would use the money received from Burberry to make acquisitions.

Citi's Chauvet said the possible outcomes of further talks were a new agreement with Interparfums on better terms for Burberry; the formation of a new structure, such as a joint venture, with Interparfums; taking the fragrance business in-house; or licensing out the contract to a new partner.

He reckons Burberry wants to take its fragrance business to another level, narrowing the gap with fashion brands like Christian Dior (>> CHRISTIAN DIOR), Armani and Chanel which have sizeable cosmetics businesses.

Caris & Co analyst Linda Bolton Weiser reckons Burberry is also seeking rapid global expansion for its cosmetics business and not just fragrances, which may prompt the British company to look elsewhere for a partner.

"It seems unlikely that (Interparfums) will be able to strike a structure or joint venture agreement ... probably the licence will be taken away and given to someone else," Caris & Co analyst Linda Bolton Weiser said.

Weiser said the loss of Burberry's licence could reduce Interparfums' earnings by 65 to 75 percent.

Last Wednesday Burberry missed forecasts for first quarter revenue growth, sending its shares 7 percent lower.(Full Story) ($1 = 0.8170 euros)

(Reporting by James Davey; additional reporting by Pascale Denis and Ranjita Ganesan; Editing by Elaine Hardcastle and Viraj Nair)

By James Davey

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