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Can LVMH Provide Tiffany & Co. Investors With Much-Needed Growth?

By Ryan Brennan - Nov 12, 2019 at 11:07PM

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Luxury giant LVMH has made a bid to add Tiffany & Co. to its extensive profile of 75 high-end brands.

It was recently announced that the luxury brand LVMH Moet Hennessy Louis Vuitton SE ( LVMHF -0.90% ) has shown interest in the jeweller Tiffany & Co. ( TIF ). Last month, it was confirmed by Tiffany that they are currently reviewing an acquisition offer of $14.5 billion -- presented by LVMH.

The offer, which was valued at $120 per share, was a modest offer considering Tiffany's stock closed at $98.55 that previous on Friday -- a 22% premium. Once investors learned of the bid by LVMH, shares popped up to $129.72 per share -- an impressive rise of $31.17 over just one weekend. 

Many shareholders would welcome a takeover. Tiffany has lost nearly a third of its stock value over the past year and a half, despite setting all-time highs in July 2018. Tiffany's global sales decreased 3% through the first half of 2019 and the company has long welcomed more exposure in Europe and Asia — something LVMH can provide.

Smart move for LVMH

The move makes sense for LVMH, which would see plenty of benefits if a deal is reached. Currently, LVMH is home to 75 different brands, including Hennessy, Fendi, Marc Jacobs, and Sephora. It has been a top-seller of luxury goods for a long time -- amassing $51.9 billion in revenue last year. 

The luxury goods market continues to see impressive growth after a 6% growth in 2018, according to a report published by Bain & Company and Altagamma. Despite changes in customer preferences and the popularity of online shopping today, these product categories continue to hold up well for companies like Tiffany & Co. and Louis Vuitton. 

The chief market analyst at CMC Markets UK, Michael Hewson, believes this could be a good move for LVMH, who saw tremendous growth with Bulgari after taking them over in 2011. "His attempt to put a $14.5 billion ring on Tiffany, having already added Bulgari a couple of years ago is likely to take the fight in this sector to its closest rival Richemont, who own Cartier, and would help LVMH in gaining better access to US markets," Hewson said of LVMH owner Bernard Arnault.

The LVMH empire hasn't fully taken advantage of the jewelry and watch market since their takeover of Bulgari, which would explain its interest in growing presence in that area. 

Adding Tiffany & Co. would help bolster LVMH's American division -- currently accounting for 25% of the company's revenue -- which is a region that Tiffany thrives in. Even better, Tiffany's prices aren't as expensive as some of LVMH's brands (like Bulgari). It would give LVMH some diversification and help them tap into markets it currently isn't invested in. 

A woman holding multiple shopping bags.

Image Source: Getty Images.

Tiffany would benefit, too

In addition to losing over six full days of sales in Hong Kong during the height of the protests, Tiffany has undergone some complicated times. Replacing its CEO in 2017 after announcing the departure of their chief designer, Tiffany has been working to rebrand its image to attract the younger crowd with stronger marketing efforts and new products.

In its August earnings report, Tiffany announced it saw global sales dip 3% in the first half of 2019, but was encouraged by the growth it saw in China. As the company continues to seek more presence in Europe and Asia, a deal with LVMH can help give them the boost it needs after announcing good progress in those regions

It might be bad news for some companies that are more US-focused -- like Signet Jewelers Ltd. (NYSE: SIG), Blue Nile and Amazon (NASDAQ: AMZN).

Expect more negotiation to take place

Many analysts welcome the acquisition by LVMH, but were curious as to why LVMH decided to pull the plug now. Some expected Tiffany's price to continue dropping for the next several months. If LVMH waited, it likely could've gotten the company for a cheaper price. 

We are already starting to see it backfire with reports that Tiffany will decline the offer in search for a more lucrative one. The stock's sudden and swift rise in share price following the deal's announcement suggests that investors are expecting a more lucrative deal to be reached. 

For those who currently own shares of Tiffany, I would watch your stock closely over the next few weeks. If LVMH purchases Tiffany at a premium, it may be smart to cash out and take your money. There is a chance Tiffany settles for something lower, which wouldn't bring much value to shareholders. In the event a deal is reached, it would take a lot of polish before LVMH can see impressive growth. 

For those considering buying shares of TIF, it would be best to stay away. I don't think the reward is large enough to outweigh the risk involved if a deal isn't reached or if the purchase isn't as lucrative as imagined.


This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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