What LVMH Stands to Gain From Buying Tiffany
An acquisition could make sense for both the luxury conglomerate and the American jeweller, but it wouldn’t be without its challenges.
Could Tiffany & Co soon be under the LVMH umbrella?
According to a report in the Wall Street Journal, the world’s largest luxury conglomerate recently sent the historic American jeweller a letter outlining an all-cash takeover bid of roughly $120 per share, valuing the company in the vicinity of $14.5 billion. Bloomberg first reported the potential deal over the weekend.
On Monday, both Tiffany and LVMH confirmed the group had sent an unsolicited, non-binding proposal to the jeweller. LVMH said in a statement that “there can be no assurance that these discussions will result in any agreement.”
If a deal does materialise, the takeover would be one of the French luxury group’s biggest-ever acquisitions, putting it close to the $13 billion deal for Christian Dior in 2017. Tiffany & Co shares have risen 22 percent this year, valuing the company at $12 billion, according to Bloomberg, while LVMH is valued at around $215 billion.
This is not the first time LVMH has set its sights on Tiffany & Co. The conglomerate reportedly expressed interest in the jeweller prior to its takeover of Bulgari in 2011 for $5.2 billion, which was LVMH's last major investment in hard luxury.
“While I have no information whatsoever on a possible deal, I believe that this could be again on the menu, as the integration of Bulgari has been very successfully accomplished,” Bernstein analyst Luca Solca said in a note.
Both LVMH and Tiffany would stand to gain from a partnership.
Tiffany is one of the few independent global jewellery houses remaining in the market. While representatives of the 182-year-old house have repeatedly stated that the intention is to remain independent, analysts have long pinpointed it as an attractive, albeit expensive, acquisition target, thanks to its high brand recognition and global appeal. Last year, Tiffany reported record net sales of $4.4 billion.
And while the China retail expansion opportunity for many luxury brands is drying up, Tiffany is one of the few names that has a growing business in the region, adding to the proposition's attractiveness for LVMH, which achieved revenues of €46.8 billion in financial 2018, up 10 percent from the year previous.
The acquisition would also allow the Paris-based conglomerate to expand its presence in the US market, Solca said.
Thus far, LVMH has been relatively protected from increased US tariffs on European products, as several of its main revenue drivers — including champagne and handbags — have remained untouched. A recent meeting between US President Donald J. Trump and LVMH Chairman and Chief Executive Bernard Arnault at a new Louis Vuitton factory in Texas brought this to the forefront of the trade conversation.
For Tiffany, partnering with LVMH could help better guarantee future growth. The jeweller is still attempting to effectively address its short-comings, namely brand development and retail experience, two areas where LVMH excels. (The conglomerate’s vast retail portfolio is also a plus.)
Tiffany, which operates more than 300 stores globally, has struggled with modernising its retail network, with poor merchandising and an uneven in-store experience undermining its strong brand equity.
Well-known for its high-low product mix, there is also an opportunity to further develop high-end jewellery and watches. In the past, Tiffany was famed as a go-to for diamond engagement rings. But as consumer shopping habits around fine jewellery have shifted, with self-purchasing overtaking occasion-based gifting, new entrants into the market have put pressure on the jeweller’s core business.
In 2017, the company’s board of directors installed former LVMH executive Alessandro Bogliolo as its new chief executive and former Coach executive Reed Krakoff as chief creative officer. Following his 2017 appointment, Bogliolo outlined plans to overhaul marketing and stores. The acquisition would be a homecoming of sorts for Bogliolo, who was chief operating officer of Bulgari for a number of years, helping to support the once-family owned jeweller’s transition into the LVMH fold.
Since then, Tiffany has started to make headway, beginning with the upgrade of its Fifth Avenue flagship, complete with the Instagram-friendly Blue Box Cafe. The entire refurbishment is set to be completed by 2021.
But there is still a long way to go, and further investment by LVMH would be required in order to fully revamp the retail network.
In the first half of the most recent fiscal year, Tiffany's net sales were down 3 percent to $2.1 billion, while comparable sales were down 4 percent. Net earnings were down 9 percent from the previous year to $261 million, while net earnings per diluted share were $2.15 versus $2.31 in the year previous.
For LVMH, a Tiffany acquisition would significantly bolster its position in jewellery. (Growth in LVMH’s watches and jewellery division is slower than in all of its other units, at 4 percent, the conglomerate’s nine-month figures showed.)
Any deal would spell bad news for rival Richemont, which owns Cartier and Van Cleef & Arpels and is currently the dominant player in the hard-luxury space.
“While there are no numbers available, the widely held impression is that Bulgari has gained market share against Cartier in the past few years,” Solca said.
Tiffany, which has a big silver business, is seen as more of an accessible-luxury proposition than Bulgari and Cartier. Tiffany’s high-low positioning can be confusing to consumers, especially European ones, who don’t always view the house as a true luxury player when compared with European competitors.
“Tiffany is not a Cartier,” MainFirst analyst John Guy told BoF in May. “It’s a Jekyll-and-Hyde brand; two brands in one. Some investors struggle with that positioning.”