LVMH agrees to buy Tiffany at a slightly lower price
LVMH agreed to continue its acquisition of Tiffany at a slightly lower price, approving a $ 15.8 billion deal and ending a bitter conflict sparked by the Covid-19 pandemic that threatened to derail the largest acquisition ever carried out by the luxury sector.
The French luxury group behind brands such as Louis Vuitton and Christian Dior said Thursday it would pay $ 131.50 a share for the American jeweler, down from the original price of $ 135, valuing equity at around $ 15.8 billion. More, Tiffany would pay its shareholders a dividend of $ 0.58 per share.
In a joint statement, the two companies said they would settle their dueling lawsuits filed in the U.S. state of Delaware in September, which were sparked when LVMH threatened to get away from the case.
The boards of the two groups approved the revised terms at their respective meetings on Wednesday evening. The new terms of the deal will need to be approved by Tiffany shareholders, so closing is now expected early next year. All antitrust clearances have been obtained.
The peace agreement means LVMHBernard Arnault’s billionaire president and CEO will save around $ 425 million off the original price, or less than 3%.
It also shows that Mr. Arnault, who has the reputation of being a fierce negotiator who built his empire by acquisitions, didn’t really want to give up on the takeover even though he searched for a lower price for months. He allowed LVMH lawyers to embroil Tiffany in legal cases for her “catastrophic” performance and “dismal” outlook for the future following the breakup earlier this year of the Coronavirus pandemic.
The richest man in France has now put such acrimony behind him. “We are more convinced than ever of the tremendous potential of the Tiffany brand and believe that LVMH is the right home for Tiffany and its employees during this exciting next chapter,” Arnault said in a statement.
Tiffany chairman Roger Farah said the board concluded the compromise was in “the best interests of all of our stakeholders to secure the certainty of closure.”
“We are very happy to have found an agreement with LVMH at an attractive price and to be able to proceed with the merger now,” he added.
The agreement, signed a year ago, hit the rocks in September when LVMH said it had to pull out of the deal after the French government asked it to delay acquisition due to trade tensions between Paris and Washington. Prior to that, Mr Arnault had repeatedly tried to lower the price of the deal without success, saying the pandemic had fundamentally changed Tiffany’s value.
Tiffany then defended herself by taking legal action to force LVMH to enter into the deal on original terms.
Some analysts have questioned why LVMH started such a war with Tiffany for what ended up being a relatively modest price cut. “If confirmed, the magnitude of the price adjustment would be strange,” Jefferies analyst Flavio Cereda wrote in a note ahead of the announcement. “We do not know why LVMH and its legal team would continue the course of action they have taken since early September to obtain a minimum discount from the terms initially agreed.”
But Mr Cereda said the strategic rationale for the merger remained valid as LVMH wanted to expand into watchmaking and jewelry where it was smaller than rivals such as Richemont, owner of Cartier.
These “hard luxury” products only accounted for 8% of LVMH’s sales and 6.5% of its operating profits last year, while most of its profits came from “soft luxury” products, such as Louis Vuitton handbags and clothing.
Covid-19 has shaken the outlook for the luxury sector as stores have been forced to close and travel restrictions have kept generally spendthrift Chinese tourists from traveling abroad. Analysts have predicted that the sector’s sales could fall as much as 30 percent this year and take up to three years to recover.
Stronger than expected third quarter LVMH and Hermes sales recently increased hope for rebound after consumers in Asia and the United States resumed purchasing luxury goods this summer. LVMH shares reversed a decline of nearly 35% earlier this year and are now trading at around € 402, just 8% of their all-time highs.
The recovery of the sector may now be threatened due to a second series of blockages are being implemented across Europe and France and Germany are shutting down non-essential businesses in the coming days.