Tiffany stockholders approve LVMH acquisition

UPDATE: February 5, 2020: Stockholders on Tuesday approved the proposed acquisition of Tiffany & Co. by LVMH, according to a company press release. The merger is expected to close in mid-2020. In a statement, LVMH CEO Bernard Arnault said, "Tiffany will be an outstanding addition to our unique portfolio of luxury brands."

Dive Brief:

Tiffany & Co. will join the luxury portfolio of Parisian conglomerate LVMH Moët Hennessy Louis Vuitton, the companies announced on Monday. LVMH "will acquire Tiffany for $135 per share in cash, in a transaction with an equity value of approximately €14.7 billion or $16.2 billion," according to a press release from the companies.
The deal is expected to close in the middle of 2020 and is subject to customary closing conditions, including approval from Tiffany's shareholders and regulators, according to the release.
The purchase price reflects a sweetening of an earlier bid from LVMH of $14.5 billion, proffered a month ago.

Dive Insight:

LVMH is taking over Tiffany at a time when the iconic jeweler has seen some success in a recently launched revival, and as luxury conglomerates have turned to acquisitions to further growth. It also comes amid ongoing challenges in that market.

"Given the ongoing consolidation of the luxury sector (with European luxury houses such as LVMH and Kering buying up brands to grow their businesses), investors have long wondered if the European players would eventually set their sights on [Tiffany]," Wells Fargo analysts led by Ike Boruchow wrote in a client note Monday.

Wells Fargo analysts deemed the agreed-upon price "fair;" Credit Suisse analyst Michael Binetti in a client note Monday called it "compelling."

The marriage holds advantages for both. For LVMH, the acquisition of Tiffany will strengthen its position in the luxury jewelry market and "further increase its presence in the United States," according to the companies' release. On a conference call Monday, LVMH executives called the addition "a game-changer" for the company's jewelry and watch division. For Tiffany, it "will provide further support, resources and momentum" to the American jeweler's "key strategic priorities to drive sustainable long-term growth," Tiffany CEO Alessandro Bogliolo said in a statement.

The company appears to need such support. Despite making meaningful sales gains after polishing its brand with store and design upgrades, Tiffany has continued to struggle. Thanks to recent releases like Paper Flowers and Tiffany HardWear, and with greater transparency around the source of Tiffany diamonds, many younger consumers are returning to the iconic blue box for engagement rings and other occasions.

It's been a slog, though not without some payoff, according to Boruchow's team. "For several years, [Tiffany] has posted choppy top-line performance, but in early 2018 trends seemed to be heading in the right direction," they said in emailed comments.

Between the fourth quarter of 2014 and the third quarter of 2017, for example, the company saw flat or negative comparable sales in 10 out of 12 quarters, according to Wells Fargo. But they seemed to turn a corner in the fourth quarter of 2017, and then posted "strong +7% growth" in the first half of last year.

But challenges remain, and will likely continue, Wells Fargo also said. Unfavorable exchange rates and some weakness in Chinese consumerism led comps to falter again by the second half of last year and even more so in the first half of this year, those analysts wrote. "Thus, we see that the company has struggled to achieve sustained top-and bottom-line momentum, and we think there's somewhat low visibility into business trends in the near-term," they said.

Tiffany was facing the need for "big investments in real estate and IT assets" at this point in its turnaround, "which can be tough while also delivering on qtr-to-qtr Wall Street expectations," Binetti said. "Tucking [Tiffany] into a much larger organization like LVMH's jewelry division should let [it] focus on making the very-overdue investments to reposition the business for significantly improved sales & margins for the long-term."

On the call, LVMH executives expressed confidence in Tiffany's approach and trajectory, saying that they will be supporting Tiffany's existing strategy.