Why LVMH is Breaking Off Its Engagement With Tiffany
Author: Tim Phillips
September 10, 2020
Luxury conglomerate LVMH Moet Hennessy Louis Vuitton (EPA: MC) (OTC: LVMUY) announced it would not go through with its planned US$16.2 billion acquisition of American luxury jeweller Tiffany & Co (NYSE: TIF). Tiffany shares plunged by 11% in response to the news but finished the day down 6.5%.
The reasoning from the French luxury giant was that the French government had asked the company to delay its purchase until early 2021 – citing potential tariffs from the US. Tiffany promptly took legal action by filing a lawsuit against LVMH.
That little blue box is instantly recognisable. There’s no doubt that luxury jeweller Tiffany has built a branding/marketing powerhouse with its turquoise blue hues.
However, for LVMH (which owns brands such as Louis Vuitton, Dior, Fendi, and Celine, among others) the deal was perhaps not as palatable as it seemed pre-pandemic.
That’s because a lot of commentators felt the French firm was already overpaying for Tiffany from the outset. The price tag was set to be the biggest ever deal in the luxury industry.
A 25% tariff on French goods – announced by the US in July – has obviously played a part in LVMH’s rethink but it likely goes beyond that.
King of luxury
LVMH Chairman Bernard Arnault is well-known for making ambitious acquisitions. In fact his empire is built on them, from acquiring Christian Dior to Rimowa to Dom Perignon. The fact that LVMH has over 75 brands under its umbrella speaks to its global reach.
Yet Tiffany is suffering from the fallout of the pandemic, with global net sales falling 29% for the three months ending 31 July 2020.
One of the first things people forego in a pandemic downturn is likely a Tiffany ring. Even if it can be purchased, pushing back when it’s bought is likely going to make sense.
With LVMH already boasting a huge amount of brands, from leather goods and accessories to high-end alcohol, Tiffany isn’t a necessary purchase at the price that was quoted.
For investors who do want to play the luxury theme, LVMH is by far the best way to invest in it given the company’s diverse offerings. On the other hand, I think Tiffany is one to avoid for a while yet.
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Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.