Tiffany receives USD 14.5 Billion takeover offer From LVMH

The French company is seeking to double down on jewellery, one of the fastest-growing businesses in the luxury sector.

By guests authors Ben Dummett and Suzanne Kapner from Wall Street Journal

Tiffany & Co. has received a takeover approach from LVMH Moët Hennessy Louis Vuitton, which is seeking to add the iconic U.S. jeweller to its portfolio of upscale brands.

The French company sent Tiffany officials a letter in the past couple of weeks outlining an all-cash takeover bid of about USD 120 a share, according to people familiar with the matter. That would value Tiffany at close to USD 14.5 billion.

An all-cash bid from LVMH values Tiffany at about USD 120 a share, according to people familiar with the matter (caption courtesy by WSJ)

LVMH confirmed Monday, October 28, 2019,  that it has held preliminary discussions on a possible deal.

Tiffany is expected to work quickly on a response, some of the people said. Even though the bid represents a premium of 30 % or more to where Tiffany traded when the offer was made, according to one of the people, LVMH is expected to have to pay up even more if it wants to clinch the deal.

Shares of New York-based Tiffany closed Friday at USD 98.55, giving it a market value of nearly USD 12 billion.

The stock reached nearly USD 140 a share during the summer of 2018.

LVMH has a market value of EUR 193 billion (USD 214 billion). On Saturday, October 26, 2019, Bloomberg reported on LVMH’s interest in Tiffany.

Buying Tiffany would increase Paris-based LVMH’s exposure to jewellery, one of the fastest-growing businesses in the luxury sector.

In 2018, the global jewellery market grew 7 % and was worth about EUR 18 billion, according to Bain & Co. Tiffany, with more than 300 stores globally, is one of the world’s largest jewellers, along with Cartier and LVMH-owned Bulgari, but it has been unable to keep pace with European rivals.

Tiffany, which has about USD 4 billion in annual revenue, has struggled with lackluster sales growth for years.

The 182-year-old brand has been trying to rebuild its business after ousting its chief executive two years ago amid pressure from an activist investor. The stock, which had slumped near USD 60 in 2016, has been hovering around USD 100 for much of the past year.

Tiffany also has tried to broaden its appeal with marketing that includes more minorities and same-sex couples, added new products for younger shoppers and introduced a jewelry line for men.

But, in recent quarters sales have slipped both in the U.S. and Asia. Excluding currency swings, comparable sales have declined from a year earlier for two straight quarters. In August, executives cautioned that the protests in Hong Kong and a macroeconomic slowdown could damp profits for the rest of the year.

Luxury-goods companies have been pressured by fears of an economic slowdown in China, where shoppers account for about one-third of luxury-goods purchases world-wide. Escalating trade tensions also have played a part in waning consumer confidence in China.

Tiffany would be one of the biggest acquisitions yet by Bernard Arnault, LVMH’s chief executive and controlling shareholder. Mr. Arnault paid EUR 12 billion in 2017 to unite the storied fashion house Christian Dior with LVMH.

LVMH, which has about USD 50 billion in annual revenue, also relies on Chinese shoppers for a chunk of its sales. But, the conglomerate is so large and has so many brands—from Louis Vuitton to Dom Pérignon—that it has fared better than Tiffany in recent years. Revenue jumped in its latest quarter, showing little impact from the Hong Kong protests or the U.S.-China trade tensions.

LVMH could use its deep pockets to develop product lines where Tiffany is weak. In addition to Bulgari, LVMH owns luxury watchmakers Hublot and TAG Heuer.

“Tiffany has yet to express its full potential—for example in design jewelry and watches,” said Bernstein & Co. analyst Luca Solca.

The deal would significantly expand LVMH’s presence in the U.S., giving it more exposure to U.S. dollar-denominated revenue and reducing foreign-exchange risk, Mr. Solca said.

Tiffany’s Mr. Bogliolo is familiar with LVMH; he spent 16 years at Bulgari before LVMH took control of the company in 2011 and then served as North American operating chief at LVMH’s Sephora unit for a little more than a year. Before joining Tiffany, he was CEO of Italian apparel company Diesel SpA.

Under CEO Alessandro Bogliolo, the jeweller has pushed an expansion into China, with plans to open flagship stores in several major cities. The chain, which relies heavily on tourist spending in the U.S. market, also has been renovating its flagship New York store on Fifth Avenue.