LVMH absorbs Tiffany & Co in $16.2 billion acquisition deal

LVMH absorbs Tiffany & Co in $16.2 billion acquisition deal
Source: Fortune

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Tiffany & Co and LVMH both experienced a stock jump of 6% in New York and 1% in Paris on Monday, November 25, after these luxury brands struck a $16.2 billion acquisition deal, with Tiffany & Co taken over by the French giant.

According to Reuters, the quintessential US brand accepted a sweeter offer of $135 per share from the French luxury goods giant, after reportedly turning down a lower offer earlier this month. The transaction is expected to close mid-2020.

The initial offer reportedly undervalued the US jewellery brand according to several unidentified sources who were intimate with the deal.

Tiffany & Co was founded in 1837 in New York, and is often associated with the 1961 movie “Breakfast at Tiffany’s”, starring Audrey Hepburn. However, the jeweler has struggled with growth over the years, reportedly finding it challenging to connect with the millennial consumer. It saw sales and profits fall in 2015, before turning around in 2017 after the abrupt replacement of the then CEO, Frederic Cumenal.

This acquisition marks LVMH’s largest takeover. The conglomerate owns more than 75 brands, including Louis Vuitton, Fendi and Christian Dior. In the jewelry department, the company houses Bulgari, Hublot and Zenith, and boasts a reported $50 billion in annual revenue. Sales from the jewelry division, however, make up only 9% of LVMH’s total revenue.

The takeover also bolsters LVMH’s position in the high-end jewelry business, where it’s main competitors such as Kering Group – housing Gucci, Yves Saint Laurent, Balenciaga, Alexander McQueen, Bottega Veneta and Richemont – which owns Cartier, Van Cleef & Arpels and Chloé, have a stronger market position.

According to Bloomberg, the acquisition can double the scale of LVMH’s jewelry business within the US and Asian markets. LVMH only sees a quarter of its revenue entering from the US. However, the US market reportedly accounts for 40% of Tiffany & Co’s sales. The jeweler has also seen more success in the Chinese market where other brands have struggled.

Consultancy Bain & Company released a study that found jewelry as one of the strongest performers in 2018: “Personal luxury goods outperformed the market, posting 6 percent growth at constant exchange rates to reach €260 billion, affirming the ongoing era of a new normal.

Looking ahead, this positive growth trend is expected to continue in the range of 3–5 percent per year through 2025 – a result of favorable market fundamentals – to reach €320–365 billion.”