Editor’s Note
This article reports on the landmark acquisition of Tiffany & Co. by LVMH, finalized at a value of approximately $16.2 billion. It marks a significant consolidation within the luxury goods sector.
LVMH’s largest acquisition in history has been officially announced. On November 25, LVMH’s official website released a statement: LVMH and Tiffany & Co. have announced that the two companies have reached a definitive agreement for LVMH to acquire Tiffany at a cash price of $135 per share, valuing the transaction at approximately €14.7 billion ($16.2 billion).
The information about this deal took nearly a month from rumor to confirmation. LVMH’s offer increased from an initial $14.5 billion to the final $16.2 billion, meaning Tiffany sold for $1.7 billion more. Earlier reports suggested Tiffany believed the initial offer undervalued the company and was expected to reject it. The final price appears to have satisfied shareholders.
In its press release, LVMH described Tiffany as: “For more than 180 years, Tiffany has been synonymous with elegance, innovative design, fine craftsmanship and creative excellence. Since 1886, the Tiffany Setting has established the diamond engagement ring as an eternal symbol of love. Its extraordinary diamonds are cherished from generation to generation and its legendary jewelry designs are the ultimate reference in global jewelry. Even the Tiffany Blue Box is recognized worldwide as a symbol of sophistication and desire.”
The acquisition of Tiffany by LVMH has been approved by the boards of both companies. Tiffany’s board recommends that its shareholders approve the transaction with LVMH. The deal is expected to close in mid-2020, subject to customary closing conditions, including approval by Tiffany’s shareholders and regulatory approvals.
Analyses widely suggest that for LVMH, jewelry is not its strongest segment. Successfully acquiring Tiffany would help enhance the group’s economies of scale in the jewelry business and expand its market share in North America. LVMH stated in its press release that the acquisition will strengthen LVMH’s position in jewelry and further expand its presence in the United States. Tiffany’s addition will transform LVMH’s Watches & Jewelry division.
On October 9, LVMH stated in its Q3 2019 earnings report, “In a growth environment since the beginning of the year, LVMH will remain vigilant despite an uncertain geopolitical context. The Group will pursue its strategy focused on innovation and targeted geographic expansion in the most promising markets. LVMH will rely on the strength of its brands and the talent of its teams to further extend its global leadership in the luxury market in 2019.”
According to LVMH’s website, the group brings together 75 prestigious brands, with 2018 revenue reaching €46.8 billion and over 4,590 stores worldwide. Its business categories include Wines & Spirits, Fashion & Leather Goods, Perfumes & Cosmetics, Watches & Jewelry, and Selective Retailing. Wines & Spirits grew 7%, thanks to steady demand in China and the US. Fashion & Leather Goods achieved 18% growth in the first nine months of 2019. The Perfumes & Cosmetics business group recorded 8% organic revenue growth in the first nine months, driven primarily by the momentum of its flagship brands. Watches & Jewelry grew 4%, driven by jewelry, with Bulgari performing well.
Tiffany’s global sales grew 7% to $4.4 billion in 2018. On August 28 this year, Tiffany released its Q2 and first-half results. Global net sales for both periods were 3% lower than the same periods last year. Q2 sales fell 3% to $1.0 billion; net earnings were $136 million, down 6% from $145 million the previous year. First-half sales fell 3% to $2.1 billion; net earnings were $261 million, down 9% from $287 million the previous year.
By region, total sales in Asia-Pacific declined 1%. Management attributed the sales decline in both periods to the impact of foreign currency translation. However, growth in Mainland China remained very strong, while performance in Hong Kong and other markets in the region was mixed.
Sales by jewelry category for Q2 and the first half were as follows: Jewelry Collections were unchanged in both periods; Engagement Jewelry declined 3% and 4% respectively; Designer Jewelry declined 10% and 12% respectively.
LVMH is not the leader in the jewelry industry. According to the Bloomberg Billionaires Index, Arnault is already the richest person in Europe and the third-richest in the world, with a fortune of $96.5 billion. The deal with Tiffany will give him a lead over Johann Rupert of Richemont and the Pinault family, owners of Gucci’s parent Kering, in consolidating the luxury industry.
Contrary to popular perception, beyond handbags and cosmetics, LVMH is involved in multiple businesses. Its most recent major acquisition prior to this was in the luxury hotel sector. In December last year, LVMH and Belmond Ltd. announced that LVMH would acquire Belmond for $25.00 per share in cash. The transaction had an equity value of $2.6 billion and an enterprise value of $3.2 billion. Belmond, founded 40 years ago, has a portfolio of 46 hotel, rail and river cruise businesses in 24 countries. For the twelve months ended September 30, 2018, Belmond’s total revenue was $572 million, with adjusted EBITDA of $140 million.
