Luxury behemoth LVMH said Monday that it had clinched a deal to buy the storied US jewellers Tiffany in a $16.2 billion deal, its biggest acquisition ever, making the French firm a power player in fine gems just as demand is soaring worldwide.
The deal comes after LVMH, already the top luxury firm overall, spent more than a month wooing Tiffany, one of the world’s most famous jewelry houses, known for its wedding rings and diamonds.
The firm, founded in 1837 and headquartered on Fifth Avenue in New York, has long symbolised tony American sophistication, most memorably in the 1961 film “Breakfast at Tiffany’s” starring Audrey Hepburn, based on the Truman Capote novella.
But even though its trademark Blue Boxes have often heralded tears of joy, analysts say it has struggled to refresh its image and attract a younger clientele.
“It is an emblematic brand, an American icon that will become a little bit French,” LVMH’s chief executive Bernard Arnault told AFP. “It has lots of potential and an incredible history.”
The two companies said that LVMH will pay $135 per Tiffany share, in a transaction with an equity value of approximately 14.7 billion euros, or $16.2 billion.
The deal adds Tiffany to LVMH’s extensive stable of luxury brands that include Louis Vuitton, Dior and Moet & Chandon, and will strengthen its position in the United States.
It also lets LVMH tap into a different type of luxury demand, from clients who view their purchase as more of an investment than an impulse buy.
“These are clients who, unlike in fashion, are interested in permanence and buy a jewel to keep, but also to pass on,” Arnault told AFP.
“When you buy a beautiful dress, it’s rare that after a few dozen years this dress will still seem contemporary,” he said.
Scope for growth
Tiffany had been lagging behind its rivals in terms of sales growth in recent years, and is expected to benefit from LVMH’s extensive global network and promotional power.
“Applying this marketing and communication machinery should go a long way in making Tiffany more relevant in design jewelry and watches,” said Luca Solca, an analyst at Sanford C. Bernstein, according to Bloomberg News.
The addition of Tiffany to LVMH’s jewellery holdings, which already include Bulgari, Chaumet, Tag Heuer and Hublot, vaults it past Swiss-based Richemont, which holds Cartier among other brands.
Richemont led the pack with a 14.8 percent share of the luxury jewellery market in 2017, according to data from Euromonitor International.
But with Tiffany at 10.8 percent and LVMH at 7.5 percent, combined they will now lead the segment.
During a conference call, LVMH’s chief financial officer Jean-Jacques Guiony said Tiffany’s coveted wedding bands and engagement rings would be “a differentiating strategic force.”
He indicated that LVMH would also preserve Tiffany’s lower-priced offerings such as silver earings and other items, saying he had “absolutely no problem with entry-level products.”
LVMH began its public courting of Tiffany on October 15 with an offer of $120 per share. Last week it raised its bid to around $130, which convinced Tiffany to open its books to LVMH, which then offered $135 to clinch the deal.
On Monday, Tiffany’s stock jumped 6 percent to $133.01, while LVMH added 2 percent to close at 404.25 euros in Paris.
Tiffany’s shares had trended at around $90 per share before LVMH began to make overtures to Tiffany’s management.
LVMH stock has also climbed steadily since announcing the Tiffany bid, reaching a record high of 407.85 euros earlier this month.
“Some companies in the retail sector have complained about softer demand, but luxury brands tend to hold up well when economies cool as the mega rich usually fare better in a cooler economic climate,” said David Madden at CMC Markets UK.
The boards of directors of both companies have approved the acquisition, with Tiffany’s board recommending that shareholders approve the transaction.
The deal is expected to close in the middle of 2020 following approval by Tiffany’s shareholders and regulators.
LVMH is the world’s largest luxury group, posting record sales of 46.8 billion euros in 2018, for a net profit of 7 billion euros.