Bulgari will benefit from world No. 1 LVMH's global retail network

The offer, at a 60 percent premium to Bulgari's average share price over the past 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 world No. 1 LVMH's global retail network, improve margins through cost-sharing and help the owner of Louis Vuitton handbags close the gap with bigger watch and jewelry companies Richemont (CFR.VX) and Swatch (UHR.VX).

Analysts said the high price was justified by the savings.

"The high price is probably explained by the fact that there were rival suitors," said fund manager Gerard Moulin from Delubas Asset Management in Paris.

Rival bidders included the Richemont group and PPR (PRTP.PA), sources close to the groups told Reuters on Monday. Both groups declined to comment.

Any acquisition of family-controlled assets usually sees a buyer paying a sizeable premium to convince families to sell.

The deal valued Bulgari on a ratio of enterprise value to sales of about 3 times, compared with other potential takeover candidates Burberry (BRBY.L) on 2.7 times and Tiffany (TIF.N) 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) Net-a-porter by Richemont," which was roughly 3 times enterprise value to sales, Deutsche Bank said in a note.

The total value of the deal, including 600 million euros of convertible bonds, was 4.3 billion. It will be paid for with 1.9 billion euros of new LVMH shares and 2.4 billion cash to buy out minority shareholders, financed half with debt and half with LVMH's available cash.

Spearheaded by Arnault, LVMH was built on acquisitions and its brands also include Chaumet and Fred jewelry, Celine and Kenzo fashion, Hennessy cognac and Moet & Chandon champagne.

"Bulgari is one of the best known jewelry 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 jewelry business to make up 10 percent of its sales and about 6 percent of operating profit, analysts estimated.

Analysts believe the deal could lead rival groups to embark on a fresh consoldation wave, encouraged by the strong sales visibility they are getting from big emerging luxury markets such as China.