Editor’s Note
This article reports on the finalized $16.2 billion acquisition of Tiffany & Co. by LVMH, marking a historic deal in the luxury sector. The information is based on reports from the Financial Times and Bloomberg.
After nearly a month of negotiations, the largest merger and acquisition deal in the luxury goods industry has been finalized. LVMH Moët Hennessy Louis Vuitton, the parent company of Louis Vuitton (LV), has successfully acquired the jewelry giant Tiffany & Co.
On November 25, according to the Financial Times, LVMH confirmed it will acquire Tiffany for $135 per share in cash, totaling $16.2 billion. The final transaction is expected to be completed next year.
As reported by Bloomberg, this is the largest acquisition in LVMH’s history. Compared to LVMH’s $7 billion acquisition of Christian Dior in 2017, this $16.2 billion deal sets a new record for the group.
CNN reported that this acquisition could potentially propel LVMH Chairman Bernard Arnault to the position of the world’s richest person in the future. According to Forbes’ real-time billionaire wealth tracker, following the announcement of the Tiffany acquisition on the 25th alone, LVMH’s stock rose over 1%. Arnault’s net worth has now exceeded $106 billion, narrowing the gap with Amazon CEO Jeff Bezos (net worth $110 billion) to just over $3 billion.
As an established luxury jewelry giant, Tiffany is known as “the world’s most expensive blue.”
As early as 1961, Tiffany gained immense fame when the film “Breakfast at Tiffany’s,” starring Audrey Hepburn, significantly boosted the brand’s global influence. Subsequently, Tiffany, along with renowned brands like Cartier and Boucheron, became a leader in the luxury jewelry industry. The company’s main products include jewelry, watches, home decor and accessories, and fragrances. It operates over 300 retail stores globally and employs more than 14,000 people, including over 5,000 skilled artisans.
However, in recent years, Tiffany has been mired in declining performance. Perceived by consumers as too traditional and dull, and out of touch with younger generations, this jewelry company founded in 1837 has been labeled “old-world luxury.” Starting in 2015, Tiffany’s revenue significantly dropped to $4.1 billion. In 2016, its share of the $60 billion jewelry market shrank by 6.3%. This 183-year-old brand was forced to undertake a series of transformations to “revitalize” itself, including management reshuffles, product category expansion, and youth-oriented marketing strategies.
Although these measures helped Tiffany’s performance gradually recover after 2017, the good times didn’t last. In 2019, Tiffany’s performance declined again.
Second-quarter financial results for this year showed that in the three months ending July 31, Tiffany’s global net sales fell 3% year-on-year to $1 billion, while net earnings dropped 6% to $136 million. The 2019 interim report indicated that in the first half of the year, the company’s global net sales decreased 3% to $2.1 billion, and net earnings fell 9% to $261 million. During this period, sales data in several of Tiffany’s major markets also declined. For example, in its largest market, the Americas, sales decreased by 4% year-on-year.
Faced with Tiffany’s weak performance in the first half of the year, LVMH seized the opportune moment to make its move.
Experts analyze that acquiring the jewelry industry giant Tiffany could significantly boost LVMH’s influence in the jewelry sector. Meanwhile, Tiffany is expected to leverage LVMH’s strength to rescue its continuously declining performance.
For LVMH, one of the world’s top three luxury conglomerates owning over fifty brands including LV, Dior, and Fendi, despite its overall excellent development, the jewelry category has always been its weak point. It is reported that although LVMH owns the renowned jewelry brand Bulgari, fashion leather goods remain the group’s main revenue contributor, generating €10.425 billion in revenue in the first half of this year, accounting for 41.56% of the total. In contrast, the jewelry and watch business achieved only €2.135 billion in revenue during the same period, a mere 8.51% share.
Compared to competitors like Cartier and Van Cleef & Arpels under the Richemont Group, and Boucheron and Qeelin under the Kering Group, LVMH’s jewelry brands such as Bulgari and Fred appear slightly inferior.
In contrast, Tiffany’s annual revenue in 2018 exceeded $4.4 billion. In the 2017 global jewelry market, Tiffany held a 1.4% market share, ranking fifth globally. Among diamond jewelry companies, Tiffany was second only to Richemont and Pandora.
Therefore, as The Wall Street Journal stated, acquiring Tiffany will significantly increase LVMH’s exposure in the jewelry field.
said analyst Luca Solca, quoted by The Wall Street Journal. He believes that LVMH’s acquisition of Tiffany will greatly expand LVMH’s business in the United States, providing it with more dollar-denominated revenue and reducing foreign exchange risks.
Tiffany is not losing out in this “marriage.” In fact, ever since rumors of LVMH’s “proposal” surfaced in October, Tiffany’s stock price has been soaring, making it a big winner in November, with its stock surging over 30% in a single day at one point. As of the time of writing, Tiffany’s latest market value is $151.6 per share.
Tiffany’s senior management is also quite satisfied with this acquisition. After a strategic review, Group Chairman Roger Farah believes the deal with LVMH provides Tiffany with an exciting development path while offering shareholders a compelling price with value certainty. Tiffany CEO Alessandro Bogliolo stated that the transaction occurs during Tiffany’s internal transformation and will provide further support for the company’s development into a next-generation luxury jeweler.
Currently, the transaction statement from both parties does not provide clear details about Alessandro’s next steps, though the market tends to believe he will step down after the deal is completed. During Alessandro’s tenure, Tiffany has struggled to break free from stagnation, with sales performance hovering without significant progress.
Tiffany’s addition will not only help diversify LVMH’s currently smallest jewelry business segment but also stir up the global jewelry market, potentially altering the existing landscape.
Jewelry has become one of the best-performing sectors in the luxury market. According to a study by Bain & Company, the global jewelry market reached $20 billion in 2018, a year-on-year growth of 7%. This growth rate has already surpassed that of luxury handbags and accessories, which grew by 5% and -1% respectively in 2018. Any luxury group understands they can no longer rely solely on handbags and accessories for continuous revenue generation.
Richemont Group is the parent company of Cartier, the top-ranked high-end jewelry brand in terms of market share, and excels in high-end watches and jewelry. In the first half of the 2019-2020 fiscal year, the group’s operating income was €7.397 billion, with jewelry and watch businesses contributing 36% of sales respectively. Among these, the high-end jewelry business saw an 8% year-on-year revenue increase, truly acting as the group’s “cash cow.”
Another major competitor of LVMH, the French luxury group Kering, traditionally strong in apparel and leather goods, has been catching up in the hard luxury sector and is accelerating its competition for market share in jewelry and watches. In the 2018 fiscal year, Kering’s operating income was €13.247 billion, with jewelry and watch businesses accounting for 7% of sales.
Faced with the large cake that is the jewelry market, Bernard Arnault is clearly not indifferent, willing to let competitors carve it up. Acquiring Tiffany is a key move to reverse the group’s lagging position in the hard luxury market.
said Deborah Aitken, a Bloomberg Intelligence analyst, in a report.