Luxury group LVMH (FR:MC) has sealed the deal to acquire jewellery brand Tiffany (US:TIFF) after raising its bid to $135 (£105) a share, from an original level of $120.
The deal is expected to complete in mid-2020 and values Tiffany at $16.2bn (£12.6bn), making it the largest purchase in LVMH’s history. Investors took the deal as an indicator of the potential for more to come in the sector, sending shares in UK-listed luxury groups Burberry (BRBY), Mulberry (MUL) and Watches of Switzerland (WOSG) up on the day. Germany-listed Hugo Boss (ETR:BOSS) also saw its shares rise.
LVMH’s management said the acquisition would strengthen its position in the US market, adding that it would “transform LVMH’s watches and jewellery division” – taking its sales and operating profit contribution from 9 and 7 per cent to 16 and 13 per cent, respectively. Tiffany will become the group’s 76th brand, sitting alongside stalwarts of the luxury sector such as Fendi, Moët & Chandon and Bulgari – a fellow jewellery brand that has seen its profitability jump under LVMH’s stewardship.
At the time of LVMH’s initial approach, analyst Rogerio Fujimori at RBC Capital Markets said Tiffany stood to benefit from synergies from the group’s distribution, purchasing and digital capabilities, adding LVMH would, in turn, benefit from Tiffany’s “global scale and brand appeal” in “the only [luxury] sub-sector where LVMH is not the leader”.
Even with the raised price, LVMH management said the deal would lead to 5 per cent EPS accretion in the first year following completion, thanks to Tiffany’s profitable business model and LVMH’s low cost of debt.
Broker Jefferies noted sourcing benefits were limited but said there was the potential for Tiffany to roll out a “more comprehensive” branded accessory offering.
LVMH first made a bid in late October, sending shares in Tiffany surging 30 per cent to $128 a share in anticipation of rival bids from fellow luxury giants Kering (EPA:KER) or Richemont (SWX:CFR). None materialised, but shares in both groups were up modestly following the bid's announcement.
News of slowing iPhone sales in China prompted a drop in luxury shares back in January, over concerns spending in the country – a key geography for many in the sector – was slowing. However, these fears have since lessened, with Burberry recently reporting “mid-teens” sales growth in the country.
LVMH has been going from strength to strength recently, posting revenue growth of 16 per cent for the first nine months of 2019, led by its fashion and leather goods division and Louis Vuitton. The group saw growth in all geographic regions and operating divisions, in spite of what management called “an uncertain geopolitical context”.
However, Tiffany’s trading performance has been lacklustre by comparison. The group saw global net sales fall 3 per cent to $2.1bn during the first half. Lower demand from tourists was blamed for falling sales in the Americas, but the group saw revenues fall across all of its regions.
Data provider Refinitiv said the tie-up was the second-largest cross-border transaction of the year, coming in at a little over half the value of Peugeot’s (EPA:UG) $30.1bn deal to acquire Fiat Chrysler Automobiles.
