The all-cash acquisition — which is the biggest deal under the Louis Vuitton parent — comes with hopes that Tiffany will strengthen LVMH’s portfolio of jewelry, and increase the brands United States presence.
Former Chairman of LVMH North America Pauline Brown told YFi PM that although the deal was announced, we may see other bidders step in the ring for Tiffany.
“Tiffany is a rare asset in the world of luxury,” Brown stated. “It's really a singular asset in the world of luxury jewelry. Even though the deal was announced, I wouldn't preclude the possibility that there'll be other bidders coming forward in the next few months. The deal won't close until mid 2020. And it was done at a very healthy price, but keep in mind that in 2018, Tiffany was actually trading at a higher price than where the deal closed as of yesterday.”
“The only one [company] that could justify [acquiring Tiffany] would be Richemont, which is not nearly as big,” Brown continued. “It's somewhere between... 20% and 25% the size of LVMH. But it is two to three times the size of LVMH in watches and jewelry. And Richemont, a European company, owns Cartier, Van Cleef & Arpels. [It] owns many other jewelry brands. That is their core. That's their sweet spot. It is not LVMH’s sweet spot. In fact, only right now pre-Tiffany, only about 9% of LVMH of sales are in watch and jewelry.”
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.
Earlier this month, LVMH offered Tiffany $14.5 billion, or $120 a share in cash, to acquire the jeweler. Tiffany declined the offer, arguing that deal significantly undermined the brand.
“I think they started low [because] that was where they were going to anchor it,” Brown stated. “If you look at 2018, Tiffany traded at close to $140. So it's actually under its high watermark. And it is just such an extraordinary company. Now LVMH is taking a big bet on it. The closest deal that it did as a standalone acquisition was Bulgari, which was less than a third the price of that one. So they better make it work.”
Chelsea Lombardo is a production assistant for Yahoo Finance. You can find more of her work here.