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Ex-LVMH boss on why Buffett passed on Tiffany: 'They need to polish up the diamond'

Chelsea Lombardo
Production Assistant

Warren Buffett isn’t looking to add something shiny to his portfolio.

The Oracle of Omaha reportedly turned down a chance to buy Tiffany & Co., (TIF), according to the Financial Times, after the luxury jeweler received a takeover bid from LVMH (LVMUY) for $16.2 billion in November.

Pauline Brown has an idea why Buffett passed on the chance. LVMH’s ex-chairman of North America recently told Yahoo Finance that Buffett’s decline says more about the legendary investor’s comfort zone than it does about LVMH.

Lauding the Oracle’s penchant for “very good, solid lasting brands,” Brown suggested on “YFi PM” in an interview this week that “Tiffany is not a classic Buffett investment, for one, because of its turnaround.”

The luxury company has “been underperforming for the last couple of years. There's a lot of new initiatives, some of which only time will tell if they're working,” Brown added.

Tiffany’s sales and profits have been struggling over the past few years as the luxury brand continues to struggle to appeal to the younger generations.

“Tiffany hasn't done enough to make it relevant and interesting in the last few years,” Brown stated. “I do expect, from a product design and development, that there'll be a lot of innovation that we haven't seen coming out of that company in a long time,” she said.

“It has lost its luster within the segment, which has otherwise been very healthy. The segment of luxury has been healthy. This is true. They need to polish up the diamond,” she said.

Berkshire Hathaway Chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway Inc's annual shareholder meeting in Omaha, Nebraska, U.S., May 4, 2019. REUTERS/Scott Morgan

Meanwhile, Buffett took a pass because — as his investment history shows, “he looks for steadiness,” Brown continued. “He looks for a depth of company and, frankly, a global presence that I don't think represents Tiffany.”

LVMH’s all-cash acquisition of Tiffany, announced in November, is the biggest deal under the Louis Vuitton parent. Before accepting the $16.2 billion buyout, Tiffany declined a $14.5 billion from LVMH, arguing that deal significantly undermined the brand.

Brown called the price LVMH’s is paying “healthy” given where Tiffany’s stock was trading.

“On the one hand, the premium over where it was trading before is significant. On the other hand, the premium over where it was trading just a year before that deal was announced, it was actually low,” she told Yahoo Finance.

“The offer price was below where it was trading a year ago. So the company had sunk pretty far,” she said. “And, again, I think the bigger issue for Buffett is the volatility than the actual price.”

In order for the high-end jeweler to reinvigorate its brand, LVMH may shake up the management team, Brown said — which will help the company “back to what made the brand great 10, 20, 30 years ago. So I would expect there'll be a lot of changes, but not so much in LVMH setting the strategy as in getting a team in place that can really rebuild what was.”

Chelsea Lombardo is a production assistant for Yahoo Finance. You can find more of her work here.

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