|Bid||126.07 x 1300|
|Ask||125.56 x 900|
|Day's Range||124.64 - 126.16|
|52 Week Range||73.04 - 130.40|
|Beta (3Y Monthly)||1.67|
|PE Ratio (TTM)||27.35|
|Earnings Date||Dec. 5, 2019|
|Forward Dividend & Yield||2.32 (1.86%)|
|1y Target Est||120.30|
Oct.28 -- Dana Telsey, chief executive officer of Telsey Advisory Group, discusses LVMH's possible acquisition of Tiffany & Co. with Bloomberg's Vonnie Quinn and Guy Johnson on "Bloomberg Markets."
(Bloomberg) -- Want the lowdown on European markets? In your inbox before the open, every day. Sign up here.Richemont signaled it’s inclined to focus on expanding its own jewelry brands rather than start a bidding war with rival LVMH for Tiffany & Co. And the latest numbers show the Swiss watch and luxury company has some work to do.The stock fell as much as 5.8% after the Cartier owner reported weaker-than-expected earnings and a slowdown in second-quarter revenue, hit by Hong Kong protests and investments in e-commerce. Richemont isn’t actively defining acquisition targets, Chief Financial Officer Burkhart Grund said Friday on a call with reporters.Richemont risks being overshadowed by LVMH in jewelry if the French rival succeeds with its attempt to buy Tiffany. The Louis Vuitton owner, which offered $14.5 billion for Tiffany, owns 75 labels ranging from wine and spirits to fashion and perfume. Its market value has almost quadrupled over the past eight years to more than $220 billion, towering over the $43 billion value of Richemont. Investors consider LVMH could rejuvenate Tiffany the way it did with Bulgari, a brand it bought in 2011.“Cartier is seeing increased competition from players like Bulgari,” wrote Luca Solca, an analyst at Sanford C. Bernstein. “A stronger Tiffany could add to the pressure.”Richemont’s market value is little changed from where it was five years ago, as growth has been held back by its bigger exposure to the boom-and-bust cycle of the Swiss watch market. About half of Richemont’s 20 brands are linked to timepieces.Its acquisition targets have been much more modest this year. In September, Richemont bought Buccellati for 230 million euros ($254 million), adding the Italian brand to its jewelry labels, which include Van Cleef & Arpels.“When you have three of the best names in the jewelry industry, we prefer to focus on our strengths,” Grund said. He declined to comment on Tiffany directly.Most analysts say the company, with a 1.8 billion-euro cash position, would stretch to raise funds if it were to counterbid for Tiffany. Richemont has never sold stock to fund an acquisition, the CFO said, declining further comment. He said Richemont is “obviously” however open to M&A, as it always has been.Richemont’s sales fell more than 10% in Hong Kong, where as much as a tenth of the world’s luxury goods are bought because they are usually a bit cheaper there than in mainland China. The Vacheron Constantin owner said its first-half operating margin shrank for a second year as investments in e-commerce sapped profitability.Hong Kong contributed 8% of total sales, down from 11%, CFO Grund said. In the longer term, the city may lose its ranking as the biggest export destination for timepieces as the price differential with the mainland diminishes and demand increases in the U.S. and Japan. Richemont won’t abandon Hong Kong, where it has been trying to renegotiate leases to cut costs, Grund said.Richemont’s operating profit lagged behind analysts’ estimates on investments in e-commerce. In September, the company set up a joint venture with Chinese online giant Alibaba, which should help fashion brands such as Chloe, according to Chief Executive Officer Jerome Lambert.Jewelry has been leading Richemont’s sales growth in recent years as watch retailers have had to clear out a glut of unsold timepieces. However, profitability at Cartier and Van Cleef contracted as Richemont boosted marketing and renovated stores. Earnings from Swiss watches declined as Richemont becomes more selective as to whom it sells timepieces to make them more exclusive.(Updates with background on LVMH in third paragraph)To contact the reporter on this story: Corinne Gretler in Zurich at email@example.comTo contact the editors responsible for this story: Eric Pfanner at firstname.lastname@example.org, Thomas Mulier, John BowkerFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Tiffany & Co has asked Bulgari owner LVMH to raise its $14.5 billion acquisition offer, arguing that it significantly undervalues the U.S. jewelry chain, people familiar with the matter said on Wednesday. Tiffany's board decided that LVMH's $120-per-share, all-cash bid was too low to become the basis for negotiations, the sources said. Tiffany informed LVMH it could open its books and provide confidential due diligence if the French luxury group sweetens its offer, the sources added.
Tiffany's board decided that LVMH's $120-per-share, all-cash bid was too low to become the basis for negotiations, the sources said. Tiffany informed LVMH it could open its books and provide confidential due diligence if the French luxury group sweetens its offer, the sources added. LVMH remains engaged and is considering a new offer, according to the sources.
(Bloomberg Opinion) -- Like expensive gems, luxury goods companies have scarcity value. If Bernard Arnault’s LVMH Moet Hennessy Louis Vuitton SE is allowed to get its hands on Tiffany & Co., the American jeweler is unlikely to come up for sale again. That’s something LVMH’s biggest rivals, Kering SA and Cie Financiere Richemont SA, might want to consider carefully.Financially they could both afford to make counterbids for Tiffany. An offer from either Cartier-owning Richemont or Gucci-owning Kering at the $120 per share price proposed by Arnault would lift their net debt to about 2.5 times Ebitda. That’s not too much of a stretch. Kering also has a 15.7% stake in sportswear maker Puma, worth about $1.8 billion, which it could reuse on something more promising.Both companies are no doubt extremely wary of taking on someone with such deep (and well-tailored) pockets as Arnault. But it’s a hard fight to sit out. Of the two, Richemont has most to lose from an LVMH-Tiffany tie up. The combined Franco-American group would take the Swiss giant’s position as the global leader in luxury jewelry, according to Bloomberg Intelligence.Arnault has a track record of turbocharging the brands he adds to his stable. Take the jeweler Bulgari, which has more than doubled its revenue since being bought by LVMH in 2011, according to analysts at Royal Bank of Canada. If LVMH repeated that trick with Tiffany, it would seriously challenge Richemont’s flagship Cartier brand.It would be a leap for Richemont to take on a lot more debt, especially when it’s still integrating the acquisition of online retailer Yoox Net-a-Porter and is developing a web joint venture with Alibaba Group Holdings Ltd. But these distractions might explain Arnault’s tactics in striking now for Tiffany.As for Francois-Henri Pinault’s Kering, it has lived with higher leverage in the past, although it tried to stick within a range of 1-2 times Ebitda. It certainly has room to expand in jewelry. Along with watches, the category accounted for just 6.8% of its sales in 2018. But many of Tiffany’s products are in the so-called “accessible” luxury segment (sometimes priced at about $1,000 or below), which Kering has been moving away from. The French group got rid of most of its stake in Puma last year to focus on the high-end stuff.Another problem for both rivals is that any counterbid would have to be above the $120 per share on the table, and would probably provoke a response from Arnault. The final purchase price would be even more of a stretch. LVMH has a “balance sheet war chest” of more than $20 billion, according to Deborah Aitken of Bloomberg Intelligence.Of course, a competing bid could be funded partly with shares, but Tiffany might well prefer cash.If Richemont and Kering can’t be enticed, the American company will have to persuade LVMH that it’s worth more without the help of an interloper bidding up the price. With its sales going in the wrong direction that looks difficult. But auction or not, it’s Tiffany’s job to make Arnault pay up.\--With assistance from Chris Hughes.To contact the author of this story: Andrea Felsted at email@example.comTo contact the editor responsible for this story: James Boxell at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.
(Bloomberg) -- De Beers is taking more drastic steps to stem the crisis in the diamond industry by cutting prices across the board for the first time in years.The company, the world’s biggest diamond producer, lowered prices by about 5% at its November sale, according to people familiar with the matter, who asked not to be identified as the information is private.The move is aimed at helping improve profits for the middlemen of the diamond industry, a group of traders and polishers that buy rough gems from De Beers. Many of these customers, which includes family-run traders in Belgium, Israel and India, as well as the subsidiaries of Tiffany & Co. and Graff Diamonds, are running on wafer-thin profit margins because of low prices and an oversupply of polished gems."De Beers is a price setter and has not made any price cuts thus far, despite the open market price for rough diamonds falling by about 9% year-to-date," said Edward Sterck, an analyst at BMO Capital Markets. "The most important market participant finally taking action after holding out for so long feels like a fairly typical indication that things may be about to improve."The price cut is unlikely to trickle down to the retail market and consumers shouldn’t expect to see diamond prices getting cheaper anytime soon.Part of the problem in the diamond industry is that prices have stagnated as other luxury offerings, like shoes, handbags and resort vacations, crowd the field. It’s also harder for diamond trading companies to find financing because banks are abandoning the sector after being hit by frauds and bad loans.Still, De Beers has insisted that the current weakness doesn’t mean demand has softened. Last week, the company released data that showed demand for diamond jewelry rose 2.4% last year. In the U.S. market, where almost half of all diamonds are sold, the increase was 4.5%.The Elite Club That Rules the Diamond World Is Showing CracksDe Beers sells its gems through 10 sales each year in Botswana’s capital of Gaborone, and the buyers -- known as “sightholders” -- have to accept the price and the quantities they’re offered. It’s a system that originated in the 1890s and is designed to benefit both miner and customer, who receives the diamonds at a discounted rate. But the discount has been shrinking. Some sightholders now struggle to make money from a business that was once highly lucrative.De Beers has offered its buyers more flexibility about their purchases, but it hasn’t been enough. The company made less than $300 million in each of the past three sales, which is the lowest in data going back to 2016.The November sales data, due next week, could indicate whether the price cuts are helping drive demand.Anglo American Plc, which owns De Beers, closed up 1.8% at 2,080 pence in London on Monday.(Updates with analyst quote in fourth paragraph.)To contact the reporter on this story: Thomas Biesheuvel in London at email@example.comTo contact the editors responsible for this story: Lynn Thomasson at firstname.lastname@example.org, Nicholas LarkinFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
Tiffany (TIF) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.
The S&P 500 hit a record high on Monday, while the Nasdaq fell just short of its lifetime high touched in late July as a more civil tone between the United States and China lifted hopes for a possible trade deal and investors looked toward a Federal Reserve rate cut later this week. Microsoft Corp shares climbed 2.46%, making the stock among the biggest boosts to each of three major indexes after the technology giant won the Pentagon's $10 billion cloud computing contract, beating out Amazon.com Inc.
(Bloomberg) -- LVMH has offered $14.5 billion for jeweler Tiffany & Co. in a bid that could result in Chairman Bernard Arnault’s biggest ever takeover and expand the Louis Vuitton owner’s reach into the U.S.Tiffany said it received an unsolicited $120-a-share proposal from the luxury giant, after the French company confirmed a Bloomberg report that it was considering a bid. Tiffany shares surged 31%, on track for a record one-day gain, to $129 at 2:55 p.m. Monday in New York.The jeweler advised shareholders to take no action, saying its board is reviewing the offer. LVMH made the initial offer on Oct. 15, when it represented about a 33% premium to the previous day’s close, people with knowledge of the matter said.There’s no assurance that preliminary talks will result in an agreement, LVMH said in a statement, while Tiffany said no discussions are under way.A deal for the jeweler would expand the French company’s access to U.S. luxury shoppers, giving it an iconic, 182-year-old brand known for its robin’s egg blue boxes and its role as a favorite haunt of Holly Golightly in Truman Capote’s “Breakfast at Tiffany’s.” Adding the brand to a stable that includes the Bulgari jewel and watch label, Christian Dior fashions, Hublot watches and Dom Perignon Champagne could help LVMH compete against Cartier owner Richemont SA.Jewelry is one of few segments of the luxury sector where LVMH is not the leader, “and we know Mr. Arnault likes to be always No. 1,” RBC analyst Rogerio Fujimori said in a note. “Tiffany would become a better company and stronger competitor under the ownership of LVMH.”Even after Monday’s surge, Tiffany shares are short of their peak of $139.50 in July 2018.‘Stronger Competitor’A fair valuation of the jeweler would be about $160 a share or higher, according to Cowen & Co. analyst Oliver Chen. He wrote in a note Sunday that Tiffany’s “strategic positioning as a gifting authority, brand DNA as a diamond and bridal authority, are leading qualities and deserve an exceptional premium.”LVMH fell 0.5% in Paris trading Monday. It has jumped about 48% this year, giving the company a market capitalization of about $214 billion.The French company has been riding a wave of luxury demand in China but faces risks including that country’s trade war with the U.S. and the months-long anti-Beijing protests in Hong Kong. Earlier this month, it opened a new Louis Vuitton factory in Texas in a ceremony that included President Donald Trump as the French company sharpens its focus on the U.S., its second-largest region by revenue behind Asia.What Bloomberg Intelligence SaysLVMH’s Tiffany bid makes sense, but the $14.5 billion rumored price may be too little, as the 14x Ebitda valuation compares with 20x-plus for LVMH’s Bulgari and Swatch’s Harry Winston deals. Tiffany would boost LVMH to luxury jewelry No. 1 ahead of Richemont and infill its Bulgari, Chaumet and Fred brands.\-- Deborah Aitken, BI luxury retail analystLVMH Confirms Tiffany Interest, Yet Price Tag Looks Light: ReactA takeover of Tiffany would be bigger than the $7 billion LVMH paid for the rest of Christian Dior in 2017. For 70-year-old Arnault, it would be his first major transaction since the purchase of luxury hotel chain Belmond last year, and potentially among the largest deals by a European company in 2019.After a difficult period when it lost track of consumer trends and suffered from a slump in U.S. tourism, Tiffany has been bouncing back under Chief Executive Officer Alessandro Bogliolo, revamping its New York flagship store with major investments targeting younger shoppers.Bogliolo, a former executive of Bulgari and jeans label Diesel who was hired by the U.S. jeweler two years ago after hedge fund Jana Partners pushed for changes, has refreshed Tiffany’s marketing. The CEO said last month that he plans to open more stores in mainland China as a weak yuan deters the country’s consumers from spending overseas.In jewelry, LVMH isn’t as dominant as in fashion. Adding Tiffany would expand the French giant’s potential market with somewhat more accessible products. Unlike Bulgari’s more-rarefied offerings, such as 2 million-euro ($2.2 million) wristwatch, Tiffany is better known for engagement rings that might cost a couple months’ pay.Arnault is already Europe’s richest man, with a fortune of $96.5 billion, according to Bloomberg Billionaires Index. A deal for Tiffany would keep him ahead of Richemont’s Johann Rupert and Gucci owner Kering’s Pinault family in the race to consolidate the luxury industry. With sales of more than $50 billion, LVMH dwarfs Tiffany, which has about $4.4 billion.If an agreement is reached, it would mark the latest push by a French acquirer to tap growth in the U.S. French technology company Dassault Systemes SE agreed in June to buy Medidata Solutions Inc., a software firm that analyzes clinical trials, for $5.7 billion. And last year, Axa SA acquired XL Group Ltd. for $15.3 billion, seeking to capture a bigger slice of the U.S. property and casualty market.(Updates with timing of initial offer in third paragraph.)\--With assistance from Vinicy Chan, Kim Bhasin and Bob Van Voris.To contact the reporters on this story: Ruth David in London at email@example.com;Dinesh Nair in London at firstname.lastname@example.org;Ed Hammond in New York at email@example.com;Robert Williams in Paris at firstname.lastname@example.orgTo contact the editors responsible for this story: Aaron Kirchfeld at email@example.com, ;Eric Pfanner at firstname.lastname@example.org, Ben Scent, Jonathan RoederFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The S&P 500 hit a record high on Monday, while the Nasdaq hovered just below its lifetime high touched in late July, as a more conciliatory tone between the United States and China buoyed hopes for a possible trade deal and investors anticipated a rate cut by the Federal Reserve later this week. Microsoft Corp shares climbed 2.54%, making the stock among the biggest boosts to each of three major indexes after the technology giant won the Pentagon's $10 billion cloud computing contract, beating out Amazon.com Inc.
European shares touched their highest level since January 2018 on Monday, boosted by carmakers and miners on hopes that the United States and China were closer to getting a trade deal, while a drop in banks led by HSBC capped gains. U.S. President Donald Trump said he expected to sign a significant part of the trade deal with China ahead of schedule but did not elaborate on the timing.
Pre-markets appear ready to open in new record territory, with news of a potential Tiffany sale and a bevy of new earnings reports.
Tiffany & Co. (TIF) today confirmed it has received an unsolicited, non-binding proposal from LVMH Moet Hennessy – Louis Vuitton to acquire Tiffany for $120 per share in cash. 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. Tiffany shareholders need take no action at this time.
(Bloomberg) -- Tiffany & Co. may attract rival bids, analysts said, after the jewelry maker said it was reviewing an unsolicited $120 per-share bid from French luxury conglomerate LVMH.Tiffany shares climbed as much as 30% on Monday, their biggest single gain ever, to the highest in a year. The confirmation of talks followed a Bloomberg report that the French company has offered about $14.5 billion. For LVMH, an acquisition has strategic logic as it would increase the company’s exposure to the U.S. market, analysts said, noting that LVMH has a strong track record in M&A.Shares of the French company gained as much as 1.5%, boosting other luxury stocks in the region.Here’s what analysts had to say about a possible deal:KeyBanc, Edward Yruma(Rates Tiffany overweight, raises PT to $125 from $115)Continuing consolidation in luxury makes sense given the shift to e-commerce, importance of the Chinese market, and likely synergies.Notes that LVMH could accelerate Tiffany’s growth in Europe and Asia, and says there are “significant real estate and marketing synergies that can be unlocked.”Deal looks “reasonable” in $125-$130 range; Richemont (owner of Cartier, strong presence in hard luxury) or Kering (need to diversify into hard luxury, owns Pomellato) could likely also look at Tiffany.Deutsche Bank, Francesca Di Pasquantonio(Upgrades Tiffany to buy from hold, PT to $130 from $100)An approach is credible, given the appeal of the sector.Tiffany management and board are likely to have a high bar in regards to any approach due to the company’s strong brand equity, the argument that earnings and margins are currently depressed, and the potential for a third party to get involved.Cowen, Oliver ChenTiffany deserves an “exceptional premium” of 20x Ebitda or higher (or $160/share), similar to Bvlgari and Versace transactions, as margin and growth opportunities at Tiffany are “substantial.”LVMH has ample financial capacity for a deal; expects many strategic and financial synergies given margin expansion.Says other factors to consider include: potential interest from other luxury players such as Richemont, other financial and strategic bidders, a leveraged or management buyout, and risk that deal doesn’t materialize.Bank of America Merrill Lynch, Geoffroy de Mendez(Rates LVMH buy)$120/share price would value Tiffany at 3.2x EV/sales, which is slightly higher than the valuation paid for Bulgari by LVMH in 2011.If a deal were successful, it would mean LVMH’s U.S. exposure would rise to 26% and would almost double the size of its watches and jewelry unit to EU8.4b.Notes that LVMH has been a leader in sector consolidation, and if the potential deal goes through, will likely lead to more M&A in industry.RBC, Rogerio Fujimori(Rates LVMH outperform)Tiffany could become a better company and stronger competitor under the LVMH umbrella, analyst says, citing the success of Bulgari.Purchase also makes strategic sense for LVMH, as jewelry is among the most attractive categories in luxury, yet the company isn’t a leader.Other perceived takeover targets in the sector may get some support from the news.Bernstein, Luca Solca(Rates both LVMH & Tiffany outperform)Tiffany takeover could make sense for LVMH, given the potential in the brand, and as it would give the French company a more balanced exposure to the U.S. market.(Adds Tiffany review in first graph and and updates trading in second graph.)\--With assistance from Janet Freund.To contact the reporter on this story: William Canny in Amsterdam at email@example.comTo contact the editors responsible for this story: Celeste Perri at firstname.lastname@example.org, Beth Mellor, Monica Houston-WaeschFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.
The company behind Louis Vuitton has approached Tiffany over a possible takeover - with the proposed deal reportedly valuing the jeweller at $14.5bn (£11.3bn). LVMH, the world's biggest luxury group, said following recent speculation it "confirms that it has held preliminary discussions regarding a possible transaction with Tiffany". The statement did not put a figure on the proposed offer - which the Financial Times reported would value Tiffany at $14.5bn (£11.3bn).
Investing.com - Luxury goods makeres were higher in midday trade on Monday after LVMH’s surprise bid for Tiffany & Co (NYSE:TIF) sparked speculation of consolidation in the sector.
Investing.com – Wall Street jumped on Monday, with the S&P; 500 reaching an all-time high after Washington and Beijing came closer to finalizing an interim trade agreement that would at least put their 15-month trade war on hold.
French conglomerate has held preliminary discussions with famous US jeweller. The French luxury group LVMH has confirmed it has made a takeover approach for Tiffany & Co, reportedly valuing the famous US jeweller at $14.5bn (£11.3bn). The owner of Louis Vuitton said it had held preliminary discussions with Tiffany, known for its diamond engagement rings and robin-egg blue gift boxes but there was no certainty a deal would be agreed. If a deal does go ahead, it would be LVMH’s biggest acquisition to date, giving the French group its first major non-fashion American brand. LVMH is the world’s largest luxury goods group, with brands including Christian Dior haute couture, Bulgari jewellery, Hublot watches and Veuve Clicquot and Krug champagne. It is owned by Europe’s richest man, Bernard Arnault. Tiffany, which featured in the 1961 film Breakfast at Tiffany’s starring Audrey Hepburn, was founded in New York in 1837 by the 25-year-old Charles Lewis Tiffany and his friend John B Young, who opened a stationery and “fancy goods” emporium on Broadway. The Broadway store’s clean “American style” quickly became popular with New York women. LVMH, renowned for its handbags and designer dresses, moved into “hard luxury” – jewellery and timepieces – in 2012 when it opened a jewellery boutique in Paris. Its prices range from £180 for a pair of V stud earrings to necklaces and rings encrusted with rare diamonds, which can cost more than $1m. The Tiffany acquisition would bolster LVMH’s hard luxury arm, which includes Bulgari and Fred jewellery, and Hublot and Tag Heuer watches. It would allow it to compete better with its Swiss rival Richemont – the company behind Cartier, Montblanc, Piaget and other brands – which sells watches, jewellery and luxury pens. Analysts at Jefferies said: “If a bid at this level, or indeed higher, was confirmed, it would be the largest M&A [mergers & acquisition] transaction to date for LVMH but one it could comfortably afford.” They noted that in 2011, LVMH approached and acquired Bulgari in a similar manner, over the weekend. Alessandro Bogliolo, the chief executive of Tiffany, who is trying to reinvigorate the brand, was the chief operating officer of Bulgari at the time of the bid before exiting the following year. Bogliolo’s strategy at Tiffany has involved targeting new millennial consumers, especially in China, lowering the cost of jewellery and launching new items more frequently. The turnaround has been led by Reed Krakoff, the designer who transformed the struggling leather-crafter Coach into a $5bn handbag retail giant. He introduced a new range called Everyday Objects, which included a $165 pizza cutter and $425 protractors made of sterling silver. Tiffany also hired Lady Gaga, who wore its famed 128-carat yellow diamond on the red carpet at the 2019 Oscars. LVMH released strong results earlier this month, with like-for-like sales up 11% year on year in its third quarter. It suffered a decline in revenue after the protests in Hong Kong but this was offset by a good performance in the rest of Asia, Europe and the US. LVMH had annual sales of almost $52bn last year, compared with Tiffany’s $4.4bn. The Royal Bank of Canada analyst Rogerio Fujimori said: “Tiffany would become a better company and stronger competitor under the ownership of LVMH. This is illustrated by Bulgari’s tremendous success after being taken over in 2011 by LVMH.” Conversely, he said acquiring Tiffany makes strategic sense for LVMH because jewellery remains one of the most attractive categories in the luxury sector. “Hard luxury is the only subsector where LVMH is not the leader (and we know that Mr Arnault likes to be always number 1),” he said. “Jewellery is the least-crowded category in the sector, with only a handful of truly global players, and Tiffany has a proven brand equity in Asia, where it has consistently ranked among the top three jewellery brands in our Chinese consumer surveys over the years.”
(Bloomberg Opinion) -- Bernard Arnault knows you don’t get trophy assets at bargain prices. His luxury goods company LVMH Moet Hennessy Louis Vuitton SE will probably have to pay top dollar to win over shareholders in Tiffany & Co. after making a $14.5 billion proposal to buy the U.S. jeweler.If a deal happens, LVMH investors will need to put faith in Arnault’s record of running his businesses well, and the idea that it’s worth preventing Tiffany falling into rival hands.LVMH’s initial proposal, worth about $120 per Tiffany share according to Bloomberg News, should be easy for the American company to reject. The premium is just 22% above Tiffany’s market value on Friday — too mean for such a storied brand. True, the top-up is 35% higher than Tiffany’s three-month average share price. Even so, the stock was trading almost as high as the bid price in November last year, when Tiffany’s share price to earnings multiple was considerably higher.Read More: Louis Vuitton Owner Confirms Interest in Jeweler TiffanyArnault’s financial capacity to sweeten the pitch is in no doubt. LVMH has a market value of 196 billion euros ($218 billion). Its debt relative to profit is expected to be negligible at the end of the year. Tiffany’s indebtedness is also relatively low. Buying Tiffany for cash at the mooted offer price would lift the enlarged group’s leverage to just over 1 times combined Ebitda base on current forecasts, hardly a stretch.But if a higher offer is necessary to win over Tiffany’s board and investors, a big increase in the bid price wouldn’t be easy to justify without some confidence that LVMH can squeeze more out of Tiffany than the U.S. company is anticipated to achieve on its own. Tiffany’s shares have fallen for a reason: Revenue growth has ground to a halt this year. The jeweler is forecast to increase sales by 5% annually on average over the next four years, against 6% at LVMH (a far larger company).Read More: Louis Vuitton Really Wants Something From Tiffany: Sarah HalzackMeanwhile, Tiffany is predicted to make $1.2 billion of operating profit in its 2024 fiscal year. Even at the opening bid price, that would imply a paltry mid-single digit return for LVMH on what would be a $15 billion outlay taking into account assumed net debt.The French luxury giant needs to find a way of either boosting sales or margins to make a deal pay. But Tiffany would be a bigger mouthful than Arnault is used to digesting. It is in the middle of a reinvention under its current chief executive officer, Alessandro Bogliolo, and jewelry isn't LVMH’s traditional expertise.So LVMH’s independent investors would have to place a lot of faith in Arnault replicating his past M&A and operational success. They’ve done well out of him recently: the company’s market value has doubled since early 2017. They’ll also have to judge whether they’d be happy to see Tiffany being snapped up by someone else, which would make LVMH’s position in luxury jewelry a little tougher. Tiffany will be expensive, but the cost of walking away might be too.To contact the author of this story: Chris Hughes at email@example.comTo contact the editor responsible for this story: James Boxell at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinion©2019 Bloomberg L.P.