LVMH’s New $16 Billion Offer for Tiffany May Still Be Too Low for Some

(Bloomberg) -- LVMH’s new $130 per-share offer for Tiffany & Co. may represent a “happy medium” for shareholders that could seal the deal for the U.S. jeweler, according to some analysts, while others held out the possibility of investors balking at that price.

“I would say the minimum requirement is $140 to $145,” given the multiples LVMH paid for Bulgari, Cedric Ozazman, head of investment and portfolio management at Reyl & Cie., which owns shares in LVMH, wrote in an email responding to a Bloomberg query.

Tiffany shares climbed 3.5% pre-market in New York, pointing to some optimism LVMH could increase the bid further or that another party could make an offer. LVMH rival Kering may still be interested in Tiffany, according to Morningstar Inc.

Luxury-sector stocks fell on Thursday amid concern U.S. Congress support for Hong Kong’s protesters could complicate a China trade deal, and LVMH shares retreated as much as 1.4% in Paris.

Below are comments from investors and analysts surveyed by Bloomberg News for their views on LVMH’s sweetened offer:

Bernstein, Luca Solca

• $130 appears to be “a happy medium” between the initial LVMH offer of $120 and press reports that Tiffany saw $140 as the “right” offer
  • Most likely scenario is that deal goes through at this level
• This “dovetails with our initial expectation that LVMH would not be likely to sweeten the offer by much: $5-$10/share being the most likely”

Mainfirst, Marion Boucheron

• $130 remains an “attractive price” from an LVMH standpoint, and company should “remain disciplined”
• LVMH support would “clearly be a plus for Tiffany” and “the decision is in their hands”

Morningstar, Jelena Sokolova

• The offer is “generous enough” as the price tag implies high-single-digit revenue growth and margin expansion to above 25%, which may be challenging to achieve given Tiffany’s exposure to slower growing categories such as engagement and designer collections, where scope for innovation is limited, as well as slower expansion in geographies such as the U.S
• On the other hand, the offer is still somewhat below where the share price was last year, “which still may cause some shareholder resistance”
• It also depends on whether another potential suitor emerges: no noise on any competing bids so far, but Tiffany could be interesting for Kering, which has the bidding firepower and a low presence in hard luxury that Tiffany would complement
  • If there is a bidding war, LVMH could go significantly higher than $140, however “to generate value at these levels would be problematic”
• There’s still a “real” possibility of the deal not going through

Reyl & Cie., Cedric Ozazman

• Minimum requirement is likely ~$140-$145
• Around 24x Ebitda was paid for the Bulgari acquisition and “for Tiffany we’re talking about 15x;” however Bulgari was much smaller
• An offer price at $145 would mean paying ~17.5x Ebitda: “for Tiffany shareholders it would be a good price as the stock surged by 264% over the last decade but revenue growth appears to be normalizing”
  • Tiffany’s Ebitda margins “seem stuck” in the 22%-25% range, meaning company “close to peak margins right now and with little room for expansion”

Bloomberg Intelligence, Deborah Aitken

• LVMH’s increased bid for Tiffany -- upped 8% to $130 a share, or almost $16 billion, according to press reports -- could break the three-week silence and seal the deal, in our view.
• It makes sense for LVMH, catapulting it ahead of Richemont to No. 1 in luxury jewelry globally. Tiffany would more than double LVMH’s jewelry scale, particularly in fast-growing Asia.

To contact the reporter on this story: Albertina Torsoli in Geneva at atorsoli@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Monica Houston-Waesch, Namitha Jagadeesh

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