LVMH Buys Tiffany in $16 Billion Deal

The French luxury conglomerate is betting that it can restore shine to the faded American jeweller and boost its watches and jewellery division.

Tiffany storefront | Source: Shutterstock

PARIS, France — Luxury giant LVMH Moët Hennessy Louis Vuitton SE has reached a $16.2 billion deal to buy American jeweller Tiffany & Co.
The two companies announced Monday that they had entered an agreement for LVMH to acquire Tiffany for $135 a share — a multi-billion dollar bet that LVMH can restore Tiffany’s faded shine.
In a call Monday, LVMH Chief Financial Officer Jean-Jacques Guiony described the deal as a “game-changer” for the conglomerate’s watches & jewellery segment, batting away concerns over Tiffany’s near-term performance.
“We strongly believe that LVMH is not only an ideal owner for Tiffany but also that this iconic brand is a perfect addition to our portfolio and perfect complement to our existing model,” Guiony said.
The all-cash acquisition is one of the largest ever for the French conglomerate known for its hard-charging deal making and surpasses its $13 billion deal for Christian Dior in 2017. The announcement ends a month of speculation, after reports that LVMH had approached the jeweller leaked in October. LVMH initially offered $14.5 billion for Tiffany, according to Reuters, but the company said the offer was too low.
That wasn’t the first time LVMH — Europe’s second-most valuable company, with a market capitalisation surpassing €200 billion — had set its sights on Tiffany. The conglomerate reportedly expressed interest in the jeweller prior to its takeover of Bulgari in 2011 — LVMH's last major investment in hard luxury.
The storied American brand has resisted acquisition for years, but as one of the few independent global jewellery houses remaining in the market, analysts had long speculated that it would make an attractive, if expensive, target.
But Tiffany has had a difficult time lately. In the first half of 2019, worldwide net sales at Tiffany decreased 3 percent to $2.1 billion. The American jeweller is facing weak demand at home and abroad, and will likely need heavy investment to re-energise its brand and business.

We are optimistic that we can, with this fabulous brand, increase the revenues further and expand the margins.

It’s been updating its store experience, and recently hired former Barneys chief executive Daniella Vitale to reposition its brand identity. While the company continues to grow in China, it has struggled to win over Millennials and Gen-Z consumers in the West, as young shoppers move away from traditional occasion-based gifting and as self-purchasing gains popularity.
“Within LVMH, Tiffany will be able to accelerate its ongoing strategy,” Guiony said. “We are optimistic that we can, with this fabulous brand, increase the revenues further and expand the margins.”

The deal will bring LVMH’s substantial financial and market clout to help support Tiffany’s ongoing transformation efforts. At the same time, it boosts the French company’s presence in the US market.
Last month, LVMH Chief Executive Bernard Arnault had a controversial photo-op with President Donald Trump at the opening of a new Louis Vuitton handbag factory in Texas, doubling down on the country.
The deal also allows LVMH to gain further ground on Swiss conglomerate Richemont, which has long dominated hard luxury with its ownership of Cartier and Van Cleef & Arpels. Jewellery was one of the best-performing luxury categories in 2018, according to Bain & Co, which predicts that the global $20 billion market will grow 7 percent this year.
Acquiring Tiffany gives LVMH a greater degree of control over its hard luxury supply chain. That’s an increasingly desirable trait for luxury brands, under pressure to guarantee provenance and lock in supply in a competitive market. Tiffany employs more than 5,000 artisans to cut diamonds and craft its jewellery, rather than buying from middlemen.
Going forward, LVMH is eyeing the opportunity to expand Tiffany’s market penetration internationally. The brand only generates 11 percent of its revenue in Europe, for instance. Longer term, the deal opens up the prospect of new product categories for the jeweller. While Guiony said watches wouldn’t be a big focus near term, it would be “foolish” not to dabble into accessories including leather goods and scarves, as they successfully did with Bulgari.
“This is good news, and somewhat expected,” said Bernstein analyst Luca Solca. The deal is priced slightly above expectations, but “still good news for both shareholder bases.”
LVMH’s shares were up nearly 2 percent in market closing trading. The deal is expected to close in mid-2020 subject to approval from Tiffany’s shareholders.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholder’s documentation guaranteeing BoF’s complete editorial independence.

oa here

Much Growth in Luxury Handbags as LVMH Makes Gains

LVMH shares soared after its sales of luxury goods beat analyst estimates, proving its resilience to an industry slowdown and giving a boost to struggling competitors.

The stock closed up 4.5 percent to 164. 10 euros Tuesday in Paris, after gaining as much as 5.8 percent, the highest price since the Nov. 13 Paris terrorist attacks that provoked a drop in tourism and demand for luxury goods. Third-quarter sales rose 6 percent on an organic basis, beating the 4 percent expected by analysts. Increased demand for leather goods and fragrances fueled growth, with Asia improving significantly, the company said.

LVMH led gains in stocks such as Burberry Group Plc and Kering SA, the owner of Gucci. The luxury industry had been grappling with weaker demand in Asia, exacerbated by a slowdown in tourism to Europe following terrorist attacks. Last month Richemont, the maker of Cartier, warned that first-half earnings fell about 45 percent amid a slump in demand for Swiss watches, and Hermes International SCA abandonded a long-term sales growth target.

“The strong performance of the fashion and leather goods division and commentary about improvement in Asia should be taken positively for the soft luxury industry as a whole,” Zuzanna Pusz, an analyst at Berenberg, wrote in a note. 

For a Bloomberg Intelligence analysis of LVMH’s results, click here

LVMH said better results in Asia boosted sales growth at its biggest segment, fashion and leather goods, to 5 percent, the fastest pace in more than a year. Revenue from perfumes and cosmetics also bested estimates as Louis Vuitton introduced seven namesake fragrances.

In mainland China, sales picked up from mid-single-digit percentage growth in the first half to mid-teens in the third quarter, Chief Financial Officer Jean-Jacques Guiony said on a conference call. Chinese nationals were very active buyers both in and outside China, but it wasn’t clear whether this trend would continue, he said. Performance in Hong Kong also improved, while still in decline, the CFO said.“Hong Kong is still in negative territory,” Guiony said. “We were mid-teens negative and are mid-single-digit negative now.”

Richemont, which also owns fashion and accessories brands like Chloe and Alfred Dunhill, advanced 3.6 percent in Zurich. Swatch Group AG, the maker of Omega and Longines watches, ended the day up 4.1 percent. Hermes added 1.4 percent in Paris and Kering, whose Gucci brand is on the comeback trail, gained 1.5 percent.

The luxury industry has been suffering from a drop in tourism in Europe after last year’s terrorist attacks and the March airport bombing in Brussels. Demand for expensive timepieces has been hit the hardest lately. In July, Swatch reported its lowest first-half profit in seven years as demand cratered in Hong Kong, France and Switzerland.

-bloomberg.com