• Charles Heighton

Tiffany and LVMH are back to the negotiating table

By Charles Heighton – The London Financial Markets Editor and VP of Trading at King’s Global Markets

Reports from inside these two luxury giants are suggesting that the merger agreed late last year could still be on at a renegotiated price. The past few months saw this relationship sour, as LVMH sought to pull-out of the deal due to the pandemic; although odds were that this was a move designed to bring Tiffany back to the table, as it has. In fairness, though the American icon did fight back by immediately suing the French conglomerate.

The price agreed in November 2019 was $135 a share, which is steep when the world is in the middle of a pandemic and has suffered severe economic damage. Luxury brands like Tiffany tend not to thrive in recessions, so it was good business for LVMH to try to walk away or to renegotiate. I am a big believer in paying a fair price though, and if LVMH thought it was a good deal last year, it seems wrong that external factors now make it less desirable. After all, Tiffany is a big brand — it will survive this crisis and probably thrive in the near future. If a bidder truly wants a company, then the state of the economy should not matter. But lowering the price is good for LVMH and its shareholders even if it can be viewed as unethical.

It is likely that this deal will now complete, as both sides seem to agree on around the same price. Tiffany is prepared to take a small hit if the price remains above $130, while LVMH is looking to drop only a few dollars per share. So this might be a really quick negotiation. For those wondering why you would drop a deal for a mere dollar or two, every single dollar per share costs LVMH $120 million because of the number of outstanding shares.

Shareholders of Tiffany were also expecting this outcome, as the price shows. After the deal got ugly, the price fell to just above $110 but has rallied in the past few months. This shows that investors were not expecting the deal to completely fall through; otherwise, the price would have fallen below $100 to the level before the deal was announced.

From an outside point of view, this still looks like a great merger. Tiffany shareholders will get a good pay-out, whereas LVMH can absorb a world-famous brand that will help expand its jewellery offering while giving it a foothold in the US. This recent news clarifies what many hypothesised when the relationship turned sour: rather than being a genuine divorce, this was a chess move by Bernard Arnault, the CEO of LVMH and a renowned strategist. This time it may have worked, but Tiffany was far from easy prey.

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