By Evan Clark
with contributions from Miles Socha
 on November 3, 2019

The Tiffany & Co. waiting game goes on. 

Shares of Tiffany closed down 2.6 percent on Tuesday to $124.32 — just over LVMH Moët Hennessy Louis Vuitton’s offer to buy the company for $120 a share, or $14.5 billion. 

Tiffany said last week it is reviewing the proposal with the help of Centerview Partners and Goldman Sachs and has yet to indicate how it will proceed. But even if Tiffany rejected the bid, that could be part of the dealmaking dance. 

The luxury jeweler has been the subject of on-and-off takeover talk for years — in part because it stands out as one of the few true American luxury brands. 

“The LVMH offer reflects more the scarcity value of sizable luxury assets than an overall shift in the luxury deal market,” said Cathy Leonhardt, co-head of retail at investment bank PJ Solomon. “Major luxury houses are focused on luxury brands of scale and there are few independent ones that remain, particularly in hard goods.

“The Tiffany leadership team has made progress in advancing its stated strategic priorities in terms of amplifying brand messaging and innovating product; [but] the financial results have yet to reflect this, in part due to macro and geopolitical issues,” Leonhardt said.  

 That’s a dynamic that opens up some opportunity for LVMH to swoop in.

Some observers have said Tiffany should command a much-higher price tag than LVMH’s offer. For instance, Cowen analyst Oliver Chen suggested at least $160 a share — or 20-times earnings before interest, taxes, depreciation and amortization, or even the 22-times EBITDA that Capri Holdings paid for Versace last year.

But a source familiar with LVMH’s thinking suggested that its proposal represents a very generous, 30 percent premium on the roughly $90 Tiffany shares were trading at before the offer was made. 

While LVMH is clearly keen on Tiffany, the luxury giant is also said to be seeing financial weakness, undifferentiated product and insufficient innovation at the jeweler. Among the complaints are a retail network that is too large, the big spending that’s needed to carry out the renovation of its famous New York flagship and macro concerns, from weak Asian tourism to the U.S. to disruptions to the retail scene in Hong Kong. 

But the back and forth of big-time M&A — and a deal for Tiffany would be one of the largest ever for the American retail scene — involves a fair bit of haggling and posturing as the potential seller accentuates strengths to demand a higher price and the would-be buyer searches for faults to keep their costs down.

Tiffany is keeping quiet given the ongoing process, but would no doubt cast its plans to rejuvenate its Fifth Avenue flagship and the new collections from chief artistic officer Reed Krakoff as signs that it is on the move and point to its growing initiative to tell its story anew to a growing customer base of Chinese Millennials. 

Certainly Tiffany’s business could benefit from LVMH’s resources and expertise, while LVMH would pick up share and some American know-how from the company. But Tiffany and its chief executive officer Alessandro Bogliolo might also want to continue on as an independent force. 

One source guessed there was a 50/50 chance of a deal. 

Shyam Gidumal, former Northeast consumer products and retail market segment leader at consultancy EY and an astute observer of the dealmaking world, said: “Tiffany should take the deal. They will be a more successful brand in today’s market if they were part of a broader family of products.

“Everyone always wants to get a higher price,” Gidumal said. “A lot of times, people forget how to close the deal that’s worthwhile to them in the process of trying to get to a higher price. From what I can see, $120 or so is a very full offer.

“You’re always in a situation where you’re trying to figure out where the sweet spot in the market is,” he said. “Right now the sweet spots in the market are specialty, niche players that have a very tight focus on an engaged customer base and people who have more of a portfolio. Someone like Tiffany is stuck in the middle — the middle is now bigger than it used to be.”

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