(Bloomberg)—LVMH, No. 20 in the Internet Retailer 2019 Top 1000, has offered $14.5 billion for jeweler Tiffany & Co., No. 178, 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.
The jeweler advised shareholders to take no action, saying its board is reviewing the offer. The price would be 22% more than the Oct. 25 close. Tiffany shares surged to $128.30 early Monday.
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 jewelry and watch label, Christian Dior fashions, Hublot watches and Dom Perignon Champagne could help LVMH compete against Cartier owner Richemont Group (No. 35).
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.”
“Retail is consolidating and Tiffany has had a number of ups and downs in recent years. It comforts me if LVMH could be the buyer,” says Suchaita Kodali, Forrester Inc. vice president and principal analyst. “That would be the scenario that preserves the brand equity most and would be a better outcome for the long term equity of the brand than a private equity buyer.”
‘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.”
Paris-based LVMH was little changed in early afternoon trading. It has jumped about 50% this year, giving it a market capitalization of about $215 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 says
“LVMH’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,” says Deborah Aitken, Bloomberg Intelligence luxury retail analyst.
A 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 CEO Alessandro Bogliolo, revamping its New York flagship store with major investments targeting younger shoppers.
Bogliolo, a former executive of Bulgari and jeans label Diesel (No. 465) 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 offerings. 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.
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