(Bloomberg) -- LVMH has offered $14.5 billion for jeweler Tiffany & Co. in a bid that could result in Chairman Bernard Arnault’s biggest ever takeover and expand the Louis Vuitton owner’s reach into the U.S.
Tiffany said it received an unsolicited $120-a-share proposal from the luxury giant, after the French company confirmed a Bloomberg report that it was considering a bid. Tiffany shares surged 31%, on track for a record one-day gain, to $129 at 2:55 p.m. Monday in New York.
The jeweler advised shareholders to take no action, saying its board is reviewing the offer. LVMH made the initial offer on Oct. 15, when it represented about a 33% premium to the previous day’s close, people with knowledge of the matter said.
There’s no assurance that preliminary talks will result in an agreement, LVMH said in a statement, while Tiffany said no discussions are under way.
A deal for the jeweler would expand the French company’s access to U.S. luxury shoppers, giving it an iconic, 182-year-old brand known for its robin’s egg blue boxes and its role as a favorite haunt of Holly Golightly in Truman Capote’s “Breakfast at Tiffany’s.” Adding the brand to a stable that includes the Bulgari jewel and watch label, Christian Dior fashions, Hublot watches and Dom Perignon Champagne could help LVMH compete against Cartier owner Richemont SA.
Jewelry is one of few segments of the luxury sector where LVMH is not the leader, “and we know Mr. Arnault likes to be always No. 1,” RBC analyst Rogerio Fujimori said in a note. “Tiffany would become a better company and stronger competitor under the ownership of LVMH.”
Even after Monday’s surge, Tiffany shares are short of their peak of $139.50 in July 2018.
‘Stronger Competitor’
A fair valuation of the jeweler would be about $160 a share or higher, according to Cowen & Co. analyst Oliver Chen. He wrote in a note Sunday that Tiffany’s “strategic positioning as a gifting authority, brand DNA as a diamond and bridal authority, are leading qualities and deserve an exceptional premium.”
LVMH fell 0.5% in Paris trading Monday. It has jumped about 48% this year, giving the company a market capitalization of about $214 billion.
The French company has been riding a wave of luxury demand in China but faces risks including that country’s trade war with the U.S. and the months-long anti-Beijing protests in Hong Kong. Earlier this month, it opened a new Louis Vuitton factory in Texas in a ceremony that included President Donald Trump as the French company sharpens its focus on the U.S., its second-largest region by revenue behind Asia.
What Bloomberg Intelligence Says
LVMH’s Tiffany bid makes sense, but the $14.5 billion rumored price may be too little, as the 14x Ebitda valuation compares with 20x-plus for LVMH’s Bulgari and Swatch’s Harry Winston deals. Tiffany would boost LVMH to luxury jewelry No. 1 ahead of Richemont and infill its Bulgari, Chaumet and Fred brands.
-- Deborah Aitken, BI luxury retail analyst
LVMH Confirms Tiffany Interest, Yet Price Tag Looks Light: React
A takeover of Tiffany would be bigger than the $7 billion LVMH paid for the rest of Christian Dior in 2017. For 70-year-old Arnault, it would be his first major transaction since the purchase of luxury hotel chain Belmond last year, and potentially among the largest deals by a European company in 2019.
After a difficult period when it lost track of consumer trends and suffered from a slump in U.S. tourism, Tiffany has been bouncing back under Chief Executive Officer Alessandro Bogliolo, revamping its New York flagship store with major investments targeting younger shoppers.
Bogliolo, a former executive of Bulgari and jeans label Diesel who was hired by the U.S. jeweler two years ago after hedge fund Jana Partners pushed for changes, has refreshed Tiffany’s marketing. The CEO said last month that he plans to open more stores in mainland China as a weak yuan deters the country’s consumers from spending overseas.
In jewelry, LVMH isn’t as dominant as in fashion. Adding Tiffany would expand the French giant’s potential market with somewhat more accessible products. Unlike Bulgari’s more-rarefied offerings, such as 2 million-euro ($2.2 million) wristwatch, Tiffany is better known for engagement rings that might cost a couple months’ pay.
Arnault is already Europe’s richest man, with a fortune of $96.5 billion, according to Bloomberg Billionaires Index. A deal for Tiffany would keep him ahead of Richemont’s Johann Rupert and Gucci owner Kering’s Pinault family in the race to consolidate the luxury industry. With sales of more than $50 billion, LVMH dwarfs Tiffany, which has about $4.4 billion.
If an agreement is reached, it would mark the latest push by a French acquirer to tap growth in the U.S. French technology company Dassault Systemes SE agreed in June to buy Medidata Solutions Inc., a software firm that analyzes clinical trials, for $5.7 billion. And last year, Axa SA acquired XL Group Ltd. for $15.3 billion, seeking to capture a bigger slice of the U.S. property and casualty market.
©2019 Bloomberg L.P.
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