Commentary

LVMH Proposes Takeover To Tiffany, Which Is Expected To Rebuff The Offer

The French luxury conglomerate LVMH Group confirmed in a brief statement this morning that it has had “preliminary discussions regarding a possible transaction with Tiffany,” confirming news about an all-cash takeover bid first reported by Bloomberg

“The group approached New York-based Tiffany with a takeover proposal earlier this month,” Bloomberg News reported Saturday, offering “about $14.5 billion in a deal that would expand its access to U.S. luxury shoppers, people familiar with the situation said," writesBloomberg’s Ed Hammond, Ruth David and Dinesh Nair. 

LVMH owns “75 distinguished houses in six sectors,” it says, with brands including Dom Pérignon, Bulgari, Celine, Christian Dior, Fendi, Givenchy, Louis Vuitton, Le Bon Marché, Marc Jacobs, Moët & Chandon, Sephora and TAG Heuer.

“Tiffany could prove an interesting fit to LVMH, which is still underpenetrated in jewelry,” Deborah Aitken, senior luxury-goods analyst at Bloomberg Intelligence, tells Hammond, David and Nair. “With branded jewelry growing at about 6% a year -- about 200 basis points faster than high-end watches -- she said buying Tiffany could help LVMH compete against companies such as Swiss rival Richemont SA, the owner of Cartier and Van Cleef & Arpels,” they write.

But the Financial Times’ Harriet Agnew and James Fontanella-Khan report that “Tiffany is expected to rebuff” LVMH, “believing the offer undervalues the company,” according to sources. 

“The all-cash offer came earlier this month and was pitched at about $120 per Tiffany share, a premium of about 30% to Tiffany’s share price at the time. However, the shares have since rallied and the offer today stands at a slimmer 22% premium. It is also well below [Tiffany’s] closing high of $139.50 in July 2018,” Agnew and Fontanella-Khan point out.

“Tiffany, which has about $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 [Frederic Cumenal] two years ago amid pressure from an activist investor,” write Ben Dummett and Suzanne Kapner for The Wall Street Journal.

“Under CEO Alessandro Bogliolo, the jeweler 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. 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,” they add.

But the retailer “has been caught out by the U.S.-China trade war as Chinese tourists spend less in U.S. shopping hubs. That has pressured its sales in recent quarters, as it tries like its rivals to push further into mainland China to capture the shift in spending patterns as Chinese clients splurge more at home,” write Reuters’ Sudip Kar-Gupta and Sarah White.

“Still, jewelry is more broadly emerging as one of the brightest and fastest-growing spots in the luxury goods sector,” they point out.

“Though the company has been known for limited collaborations with famous designers like Elsa Peretti and Paloma Picasso and the architect Frank Gehry, they had not had a single creative in charge since the brand’s founding family. In 2017, in an attempt to create a stronger visual identity, Reed Krakoff, the former Coach creative director who briefly ran his own eponymous luxury ready-to-wear line, was named chief artistic officer, responsible for jewelry, luxury accessories and all imagery,” write  Michael J. de la Merced and Vanessa Friedman for The New York Times.

“To update the jeweler’s somewhat bland image, he has since introduced an ‘Everyday Objects’ collection that included a $1,000 sterling silver tin can and a $9,000 sterling ball of yarn. He also introduced an ad campaign featuring Lady Gaga, who wore the brand’s historic 128-carat Tiffany Diamond on the red carpet at the 2019 Oscars.”

The company “was founded in 1837 by the Connecticut jeweler Charles Lewis Tiffany. The Tiffany brand name became world famous in the early 20th century under the artistic direction of his son Louis Comfort Tiffany,” according to  a CBS News report.

“Today's Tiffany's, with about $4 billion in revenue, is famed for diamond and sterling silver jewelry packaged in boxes shaded a distinctive blue known as ‘1837 Blue’ and sold at more than 250 stores in the U.S., Europe and Asia. Its Fifth Avenue flagship store at the corner of Manhattan's Fifth Avenue and 57th Street was made famous in the 1961 movie ‘Breakfast at Tiffany's' starring Audrey Hepburn,” based on Truman Capote’s novella of the same name.

As for the aspirations LVMH might have for the brand, it might be prudent to remember one of Holly Golightly’s signature lines: “I want to still be me when I wake up one fine morning and have breakfast at Tiffany’s.”

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