PARIS — LVMH Moët Hennessy Louis Vuitton on Monday struck an agreement to buy Tiffany & Co. for $16.2 billion, securing a future for the storied American jeweler among leaders of the sector while consolidating its own position as the dominant force in global luxury.
LVMH’s largest transaction ever, the deal remakes a lucrative segment of the high-end market — jewelry is up there with shoes and handbags as a leading area of growth — placing the French group on firm footing to compete with rival Compagnie Financière Richemont, the owner of Cartier, by doubling the size of its watches and jewelry division.
It will also gain a stronghold in the U.S., bulking up the group’s revenue stream from the region, a key strategic area for LVMH.
A household name, Tiffany carries New York and Old Hollywood flavors of chic while channeling the aspirational optimism of American culture — as famously relayed by Audrey Hepburn’s character in the Sixties movie “Breakfast at Tiffany’s.” The 182-year-old house, seen as the only true American luxury brand, has also gained popularity with Asia’s younger generations in recent years — a strength LVMH executives are seizing on as a promise of future growth.
“Given the importance of Chinese customers, we will obviously be very dedicated to understanding this much better to see how we can support their development with even stronger innovation and means, so that we can accelerate development in a market that — in today’s luxury world — you can’t do without,” said LMVH managing director Antonio Belloni, who spoke to WWD.
It’s increasingly a case of survival of the fittest in luxury — a sector dominated by European houses — with the rise of digital commerce calling for steep investments in infrastructure and technology. Add to that, the need to invest in retail networks in Mainland China, as government policies encourage consumers there to spend more at home.
LVMH pledged to invest in its new acquisition, which remains subject to approval by Tiffany shareholders and regulators, and is expected to close in the middle of next year.
“We have immense respect and admiration for Tiffany and intend to develop this jewel with the same dedication and commitment that we have applied to each and every one of our maisons,” said LVMH chairman and chief executive officer Bernard Arnault, Europe’s wealthiest person, in a statement.
“As part of the LVMH group, Tiffany will reach new heights,” predicted Alessandro Bogliolo, ceo of Tiffany, who in the past was ceo of Bulgari when it was bought by the French luxury group.
Executives from the French group outlined plans Monday to draw on the house’s jewelry collections to build specific product pillars, as well as focus on Asian consumers — traveling or in their home markets — saying they saw greater potential for the publicly listed jewelry house to develop outside the scrutiny of financial markets, when it enters the LVMH fold.
“We believe the company…has a very sound and logical strategy — the only issue it has is that implementing a long-term strategy of increasing the value of the brand when you have to do quarterly reporting is not that simple, and the pressure is enormous to obtain short-term results,” said LVMH chief financial officer Jean-Jacques Guiony, speaking in a conference call with analysts.
The executive said the brand was “a little bit underrepresented” in Asia, where it could be stronger with locals, as well as with travelers to Europe, particularly Asians.
Drawing on experience from its star jewelry label Bulgari, which LVMH bought in 2011 for $5.2 billion, the company plans to organize the business around specific product pillars, a common practice in the industry.
While the two brands appeal to different customers and are different stylistically — Bulgari is known for gold and colored gems, while Tiffany is more associated with platinum, silver and diamonds — some strategies can be repeated, suggested Belloni.
“If you look at Cartier, Bulgari, you have a number of product pillars, whether Serpenti, B.zero1, Diva, when you put them together, they really account for the larger part of the offer — so they have meaning that is additional to the fact that somebody likes the brand,” said Belloni, referring to the Italian jeweler’s snake-like watch bands, its modern colosseum-inspired rings and collections built around colorful fan-shaped forms meant to evoke the Caracalla baths of Ancient Rome.
For potential product pillars at Tiffany, executives listed ideas like the house’s modern T-collection, built around the letter T, as well as its diamond setting that dates back to 1886.
“We’ll have to be select and see which ones we’ll drive forward…it’s important to stay focused,” said Belloni.
“It’s capitalizing on existing lines but also developing new ones,” Guiony said, hinting at the idea of adding two or three new pillars in the future.
LVMH also boosted productivity of individual stores at Bulgari, which it plans to do at Tiffany, executives said.
“One other item that was so important at Bulgari was boosting the productivity of individual stores, and I think that remains an opportunity at Tiffany particularly in some parts of the world where they may have some stores that will need to be sized a little better or real estate that may need to be a little bit more focused,” said Belloni.
Tiffany counts 321 stores in more than 20 countries, mostly in the Americas and Asia.
“The strength of the LVMH group at picking up the best retail spots and ability to move brands in various locations, enables us to occupy the top place,” said Guiony.
Faced with the challenges of the digital era, retailers are drawing up even more spectacular flagships, which have become central to standing out in a crowded field and for relaying the essence of a brand — Tiffany, the famed Fifth Avenue flagship in New York, which is undergoing an overhaul led by Reed Krakoff, will remain a focus.
“This is a very iconic store that has been there for many years and will be there for many more years — and that will continue to be a point of strength,” said Belloni.
When it comes to price points, Tiffany makes high jewelry in the exclusive ranges but is also known for offering accessibly priced pieces. Its European web site lists a section for jewelry under 500 euros, for example, and LVMH executives said they were happy with the house’s breadth.
“All luxury brands have an entry-priced business; the question is not the price but whether they carry the value of the brand,” said Guiony, who suggested LVMH is open to exploring new categories of accessories, like scarves, perhaps, given Bulgari’s success with non-jewelry items.
“Some brands like Dior and Chanel, while they can touch the peaks of the high end…they also have lipsticks but in a very different price segment, and they represent access to the brand, with the creative integrity of the brand,” said Belloni.
Executives listed the company’s supply chain — Tiffany has been bringing its supply chain for diamonds and other materials in-house for the past two decades — and Internet commerce as areas where the French group could learn a thing or two.
“Tiffany is definitely in advance due to its high level of vertical integration,’’ said Guiony. While there are not plans in the near future to change its sourcing strategy for LVMH jewelry houses — which, in addition to Bulgari include Chaumet and Fred — it eventually “could help our brands,” added Guiony.
As for e-commerce, the executive said “what they’ve done on e-commerce is impressive,” noting lessons could be applied to other jewelry houses in the group.
LVMH initially bid $120 per share for the jeweler in October, kicking off weeks of haggling before the parties settled on $135.
The sweetened offer will call for “a bit more work” from LVMH and “a bit more time” to generate a return on the price paid, said Rogerio Fujimori, analyst with RBC, citing higher multiples than those of the original offering price. LVMH said the deal has a total enterprise value of $16.9 billion, which comes to 16.6 times 2018 earnings before interest, tax, depreciation and amortization.
“We believe that LVMH can still generate long-term value from this strategic deal if it manages to reinvigorate Tiffany’s top-line story and improve Tiffany’s profitability in the long term,” the analyst said in a research note to clients.
Drawing parallels with the luxury group’s Bulgari acquisition, the analyst predicted that Tiffany would require stronger initial investments to boost sales growth.
“We believe that Tiffany will probably require stronger initial reinvestment (we think) to reignite top-line growth but should immediately benefit from back-office and distribution synergies as part of LVMH as well as the ability to explore faster opportunities created by digital,” the analyst added.
LVMH estimated net income accretion at around 5 percent of full-year 2020 estimates, starting midyear.
LVMH was advised by Citi and J.P. Morgan, with legal counsel from Skadden, Arps, Slate, Meagher & Flom LLP. Tiffany’s financial advisers were Centerview Partners LLC and Goldman Sachs, while Sullivan & Cromwell LLP acted as legal counsel for the American jeweler.
Asked if LVMH plans to take a pause from acquisitions or if it is setting a new pace — the Tiffany deal follows the purchase earlier this year of luxury travel group Belmond for $2.6 billion — Belloni chuckled and said the company has a full plate.
“We had better put this money to work, so I think our focus will be on learning about these businesses, putting the foundations and putting them on a trajectory where we can really extract their proper value,” he said.
“For quite a while we’ll be focused on developing and maximizing the beauty of these brands before we take on something else of size,” added Belloni.