It would have been all too easy. As soon as LVMH’s bid to buy Tiffany & Co at $120 per share went public, everyone knew this was the start, not the finish, of a race whose prize would be control of the iconic American jeweller. Tiffany is a tasty morsel, after all. So much so that LVMH’s $14.5 billion offer had little chance of being accepted, particularly by a company whose share price last year reached an all-time high of $141 on the New York Stock Exchange. The jeweller’s board made this abundantly clear, indicating that it could open its books and provide due diligence – on condition that LVMH ups its offer. In these conditions, the luxury conglomerate could find itself facing rival bids from groups such as Richemont or Kering – not to mention venture capital firms, always on the lookout for a sweet deal (the acquisition of Breitling being a recent case in point).
A ripe fruit
Tiffany & Co, which has no single largest shareholder, is ripe for picking, provided stakeholders take a favourable view of the transaction. After struggling with several years of declining sales, since 2017 the company has been restructuring, a process that takes both time to reinvent collections and heavy investment in distribution. The ability to leverage strategy input from a new owner would be welcome. With $4.4 billion in annual revenue in 2018 and $790 million in operating profit (18% gross margin), Tiffany is the biggest player on the American jewellery market, which is worth an estimated $20 billion. Understandably, such a beautiful bride can expect to attract the most handsome suitors.
Tiffany would be LVMH's biggest purchase, ahead of the €6 billion paid for control of Christian Dior in 2017.
First to plight its troth, LVMH has plenty to offer. Bernard Arnault’s group knows exactly how to turn its investments into profit-making machines. Bulgari is a telling example. Since its takeover by the group in 2011, it has doubled its revenue. Sales are currently estimated to be in excess of €2 billion. Tiffany would be LVMH’s biggest purchase yet, ahead of the €3.7 billion price tag for Bulgari (excluding debt) and the €6 billion to gain complete control of Christian Dior in 2017. Still, with market capitalisation north of €200 billion and a “war chest” estimated at €20 billion, it can afford it – buoyed by 16% revenue growth for the first nine months of the year. A takeover of Tiffany would considerably bolster its Watches & Jewelry business group, which currently contributes “just” 9% of revenue with sales of €4.1 billion in 2018.
Battle of the giants
Except that LVMH probably isn’t the only luxury giant to see the value of Tiffany. Richemont, which is well-positioned on the jewellery market thanks to Cartier and Van Cleef & Arpels, its biggest Maisons, might not be inclined to let its rival take home the prize. One of the reasons LVMH made its offer now could be that Richemont is busy elsewhere, integrating its recent e-commerce acquisitions of Yoox Net-A-Porter and Watchfinder, for which it paid €2.9 billion in 2018, followed by a joint venture with China’s Alibaba and, in September this year, takeover of the Italian jewellery brand Buccellati. Financially speaking, with around €10 billion in available assets including almost €3 billion net liquidity, Richemont could certainly follow through. In a highly fragmented global jewellery market with much stronger growth prospects than watches, bringing Tiffany into its portfolio of brands would make perfect sense for Richemont. As well as for Kering, which still lacks critical size in the segment. Currently, Boucheron and Pomellato are its two jewellery houses while Watches & Jewelry contributed barely 7% of the group’s €13.2 billion revenue in 2018.
With an old hand such as Alessandro Bogliolo at the helm – the Tiffany CEO was chief operating officer at Bulgari at the time of the LVMH takeover – candidates shouldn’t expect an easy ride. At $120 a share, the battle has just begun.