By
with contributions from Evan Clark
 on October 28, 2019
Tiffany & Co.

PARIS — Shares LVMH Moët Hennessy Louis Vuitton slipped slightly Monday after the luxury giant confirmed it had made an approach to Tiffany & Co. regarding a potential takeover.

LVMH shares closed down 0.5 percent to 382.10 euros in Paris. But shares of Tiffany & Co. shot up 32.3 percent to $130.40 in New York.

“In light of recent market rumors, the LVMH Group confirms that it has held preliminary discussions regarding a possible transaction with Tiffany,” the company said early Monday in a statement.

“There can be no assurance that these discussions will result in any agreement,” it added.

Tiffany, in its own statement, acknowledged an offer from the luxury giant, and said it was reviewing the proposal for $120 per share in cash, noting it was an unsolicited, non-binding proposal.

“While the parties are not in discussions, Tiffany’s board of directors, consistent with its fiduciary responsibilities, is carefully reviewing the proposal, with the assistance of independent financial and legal advisors, to determine the course of action it believes is in the best interests of the company and its shareholders,” it said.  Meanwhile, the company is pursuing its business plan with the goal becoming a “next generation luxury jeweler,” the American company added.

Centerview Partners and Goldman Sachs are advising Tiffany, with Sullivan & Cromwell serving as its legal adviser, according to the statement.

Wall Street is betting Tiffany is worth more than what LVMH is offering.

Where the luxury giant proposed spending $14.5 billion to buy Tiffany’s outstanding, investors pushed the collective value of the jeweler’s stock to $15.8 billion. And analysts were looking even higher — to $160 a share, $19.3 billion, or even higher. (In addition to buying the stock, LVMH or another acquirer of Tiffany would also have to assume the $2.2 billion in debt on its books).

The potential takeover of the premier American luxury brand by the French luxury group would make sense for both companies, some analysts have said.

“We believe that Tiffany would become a better company and a stronger competitor under the ownership of LVMH,” said Rogerio Fujimori, analyst with RBC Capital Markets. He cited the luxury group’s success with its star jewelry label Bulgari, which it acquired in 2011.

“LVMH has a proven track record over decades enabling different luxury brands to accelerate top line growth while preserving their identity,” added Fujimori, citing LVMH’s focus on long-term strategy as well as on improving profitability, with help from the group’s corporate resources.

Access to the group’s digital resources would be key for giving Tiffany “greater investment firepower,” which could help it modernize its technological infrastructure and adapt logistics capabilities, the analyst added.

LVMH, meanwhile, would gain a broader consumer base than Bulgari, with more affordable price points and a deeper foothold in the U.S., an important market for luxury that only accounts for 9 percent of the group’s watches and jewelry sales, noted Fujimori.

Bloomberg and French news wire AFP reported on Saturday that LVMH approached Tiffany with a proposal of $120 a share earlier this month, and that the American jewelry brand is evaluating the bid, while the Financial Times reported on Sunday that Tiffany is expected to reject the offer.

The acquisition of Tiffany would strengthen LVMH’s positioning in the luxury jewelry segment. The French group also owns Bulgari, which it bought in 2011 for $5.2 billion along with Chaumet, Fred and the watch brands Tag Heuer, Hublot and Zenith.

A valuation of around $14.5 billion would represent an enterprise value to sales multiple of more than three times, comparable to the multiple that LVMH paid for Bulgari, Fujimori estimated. The analyst added that such a price would represent a enterprise value to earnings multiple of around 14 times estimated 2020 earnings, which is similar to LVMH’s more recent acquisition, Rimowa, in 2016.

But Cowen analyst Oliver Chen said Tiffany “deserves and exceptional premium” of at least 20-times earnings before interest, taxes, depreciation and amortization, which would equal $160 a share.

Chen said a “fair valuation” would be closer to 22-times ebitda — similar to what Capri Holdings paid for Versace.

“Tiffany has many characteristics that are difficult to replicate and represent competitive advantages,” Chen said, pointing to the company’s operations that go from diamond polishing facilities to stores, exposure to the briad business, brand equity and growth potential in China.

LVMH might also not be alone in its interest. Chen pointed to other would-be buyers including luxury players, such as Compagnie Financière Richemont; financial players, and management.

If LVMH were to buy Tiffany, experts said tie-up would increase competition for Richemont, with Luca Solca, analyst at Bernstein, noting that there is a “widely held impression” that Bulgari has gained market share against Richemont star label Cartier.

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