Subscribe to our weekly newsletter and stay updated!
Why LVMH is Breaking Off Its Engagement With Tiffany
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.
This material is categorised as non-independent for the purposes of CGS-CIMB Securities (Singapore) Pte. Ltd. and its affiliates (collectively “CGS-CIMB”) and therefore does not provide an impartial or objective assessment of the subject matter and does not constitute independent research. Consequently, this material has not been prepared in accordance with legal requirements designed to promote the independence of research. Therefore, this material is considered a marketing communication.
This material is general in nature and has been prepared for information purposes only. It is intended for circulation amongst CGS-CIMB’s clients generally and does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this material. The information and opinions in this material are not and should not be construed or considered as an offer, recommendation or solicitation to buy or sell the subject securities, derivative contracts, related investments or other financial instruments or any derivative instrument, or any rights pertaining thereto. CGS-CIMB have not, and will not accept any obligation to check or ensure the adequacy, accuracy, completeness, reliability or fairness of any information and opinion contained in this material. CGS-CIMB shall not be liable in any manner whatsoever for any consequences (including but not limited to any direct, indirect or consequential losses, loss of profits and damages) of any reliance thereon or usage thereof.
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.