The LVMH acquisition of Tiffany & Co.
You may have probably never heard of LVMH, but certainly, you know the brands that are part of the French conglomerate. LVMH stands for Louis Vuitton, Moet & Hennesy, a name that was born when the two companies merged in 1987. During the years they have acquired countless companies operating in the luxury and fashion industry. From spirits to leather goods, the conglomerate owns Givenchy, Dior, Bulgari, Moet, Dom Perignon among many others. The company lead by Arnault Bernard, the richest man in Europe, recorded $51.5 billion in sales last year, three times that of its competitor Kering. The conglomerate is a perfect example of corporate hunger, by the continuous acquisition of important corporate players in the industry they operate on. Bernard has been described multiple times as a great risk taker and his last deal is no different from the others.
On Monday, 25th November 2019, LVMH’s acquisition of the biggest jewelry retailer Tiffany & Co. was confirmed. Mr. Bernard sent Tiffany & Co. a letter proposing an all-cash takeover bid of $120 a share, valuing Tiffany at $14.9 billion. The Tiffany board rejected this offer as they believed it undervalued the company, but shares in Tiffany jumped by almost 30%, which led to LVMH proposing a new deal at $135 a share, valuing Tiffany close to $16.2 billion. It is important to note that before the deal with Tiffany, the largest acquisition made by LVMH was Dior for US$13.1 billion in 2017. After a deal is made, these large-scale transactions have to go through an intensive screening process, analysis of financial books, and the approval of different trade commissions, and what both parties were not expecting is that in the middle of this process the coronavirus would hit.
On March 17, 2020, Tiffany announced the temporary closure of several stores, and reduced working hours at other outlets, in an effort to contain the spread of the virus. LVMH approaches the Tiffany board about a purchase on the open market Tiffany shares, which had dropped as low as $104 per share. Meaning that instead of a deal between both parties, LVMH would try to acquire control over Tiffany with a hostile takeover.
From April to September, conversations went back and forth between both parties but due to the crisis regarding the coronavirus and the civil unrest in the United States, they don’t seem to get a deal that suits both parties.
On September 9, 2020, LVMH decides to walk away from the multi-billion-dollar deal. Tiffany then sued LVMH and sought a court order requiring the French group to abide by its contractual obligation under the deal to complete the transaction on the agreed terms.
In the following weeks, LVMH sought legal action against Tiffany defending themselves under the argument that their decision not to complete the agreement was due to a recommendation of the French Minister of Economy to protect the French national economy.
Fast forward a few months, on October 19, 2020, about a year after the initial offering, LVMH announced in a press release that it will acquire Tiffany & co. for a price of $131.50 per share, that concludes in an acquisition of 15.8 Billion dollars; the new deal allows LVMH a reduction of 425 million dollars in respect of the original price.
But why does LVMH would want to acquire Tiffany & Co.?
The answer lies within the strategic aspirations of LVMH. Most of its revenue (~90%) is earned from fashion and leather goods, selective retail, and high-end perfumes and cosmetics. However, it has been desperate to expand into other luxury segments. It has tried to expand its Jewelry and Watches segment with the acquisition of brands like Tag Huer and Bulgari. The jewelry segment is one of the fastest-growing segments in luxury and there are very few tempting acquisition targets. Since 2000, LVMH has increased its Watches and Jewelry segment revenue from a mere 2% to 9% in 2018, which is still lower than its immediate competitors. Tiffany is a strategic bid by LVMH, primarily because it has an enormous market share in the USA & Asia Pacific. Bulgari, the only current investment of LVMH in jewelry, is a very high-end brand, and adding an affordable luxury segment brand like Tiffany will only help LVMH expand its footprint and this acquisition will bring its jewelry revenue from 9% to 17%.
The slow and arduous acquisition of Tiffany is just what Arnault Bernard knows what to do best. The incorporation of the brand to the wide portfolio that is already part of LVMH will help them secure their position as the leading company in the world in all of their retail segments. The suffered negotiation in the middle of a global pandemic that made Tiffany lower the price may have been just the result of fate playing in favor of LVMH, or maybe every step that the French conglomerate took was just them playing the odds to their favor and once again we see how Arnault Bernard is the best negotiator and risk-taker in the game.
