LVMH Clinches Tiffany at Small Discount and a Lot of Bad Blood

(Bloomberg) -- Louis Vuitton prides itself on never putting its goods on sale. Be prepared to buy those canvas totes and cashmere coats at full price, or don’t buy at all, is the message to shoppers.

It’s a strategy that has preserved the brand’s luxury appeal and made LVMH boss Bernard Arnault fabulously wealthy. And it’s an approach that clearly inspired Tiffany & Co. in its negotiation tactic to get an increasingly messy and acrimonious combination with LVMH over the line.

The two companies announced on Thursday that they’d reached an agreement, whereby LVMH will purchase Tiffany for $131.50 a share, down from $135 originally promised. But at about $425 million, that translates into a discount so small that it’s little more than a rounding error in the bigger picture of the almost $16 billion transaction. Factor in the legal costs that LVMH incurred since declaring last month that it was pulling out, and Arnault may end up with no significant savings.

What France’s richest man got instead was a lot of bad blood between the two sides. Tiffany accused LVMH of having “unclean hands” when the French side initially abandoned the deal. LVMH in turn disparaged Tiffany for mismanagement of the business during the pandemic, while spending unwisely on dividends. Making matters messier still, the French government was dragged into the showdown after Arnault requested the help of Foreign Affairs Minister Jean-Yves Le Drian to extricate itself from the deal. The two companies were set to face trial at the start of next year in the U.S.

Having averted a showdown in court “will avoid airing dirty laundry, grievances and other issues in public,” said Flavio Cereda, an analyst at Jefferies. “This entire process will go down in history given a most unusual evolution of events.”

Cartier

Arnault has built his LVMH luxury empire, considerable fortune and personal reputation on his take-no-prisoners negotiation tactics, offering few concessions and often cleaning house at freshly acquired assets to fit his needs. Besides the Louis Vuitton handbag and clothing brand, the LVMH conglomerate includes Loro Piana cashmere, Bulgari jewelery and Dior haute-couture, among many others.

In this stable of high-end brands, Tiffany looked like a perfect match. In a jewelry market populated by small, family-owned players, Tiffany is publicly traded, meaning it was easier to make a bid for it. It has a strong presence in the U.S. and Asia, and gives LVMH a better foothold in a segment where it was relatively weak compared with rival Richemont SA, the owner of Cartier.

But when coronavirus struck, the deal as it was agreed looked increasingly shaky. Affluent shoppers from China were staying home, people were wary of splurging on expensive indulgences, and economies around the world were being dragged into recession.

When LVMH decided last month that it wanted out, Tiffany instantly fought back with a lawsuit in a Delaware court, accusing the luxury giant of failing to uphold a contract.

A previously amicable accord descended into a legal back and forth that left both sides with a set of unappealing choices: For Tiffany, letting LVMH out of the deal would have meant slugging out the fallout from the pandemic alone, and denying shareholders the windfall that the purchase had promised. And not getting his way would be a rare setback for the billionaire.

Before news leaked twelve months ago that Arnault was interested in buying Tiffany, the jewelry company’s board was focused on independently turning around the business for a few years under CEO Alessandro Bogliolo, who shares a professional history with Arnault, having worked at Bulgari and perfume specialist Sephora, according to people familiar with the board’s thinking. The way management saw it was that it was Arnault pushing for the transaction, not the other way round, said the people, asking not to be identified discussing private matters.

LVMH and Tiffany declined to comment for this story.

The renegotiated price now lets both sides claim victory. Arnault gets to own the prized jeweler, while Tiffany will be able to tap into a LVMH’s resources, from brand network to the global marketing machine.

“Finalizing the deal is a clear positive for Tiffany’s share price, which has been subject to significant volatility in the past few months,” UBS analysts wrote in a note on Thursday.

Still, Tiffany’s top brass should brace for changes once the deal closes in January. Integrating Tiffany into the LVMH universe will probably lead to a product overhaul, a more aggressive digital marketing strategy and a review of the existing shop network, said Jefferies’ Cereda.

Next Generation

Other changes may include management. Arnault is known for putting his own loyalists in charge at new companies to gain tighter control. Among people at Tiffany who might move on is Roger Farah, the charismatic chairman who had publicly criticized Arnault’s tactics in recent months, people close to the companies say.

While the deal has cemented Arnault’s reputation as a consummate and hard-nosed dealmaker, he’s likely at a point in his career and personal life where he has little left to prove. At 71, he’s a revered patron of the arts in France, a philanthropist who enjoys the ear of the upper echelons of the political establishment. Most of his children are already ensconced at the company, and there are very few remaining assets that he can buy at this point to truly take LVMH to another level.

“Business is business in the end,” said Paola Carboni, an analyst at Equita. “Both partners have tried to make the most of the deal and were both very aggressive. Was it worthwhile to have such a battle for many months? I don’t know.”

©2020 Bloomberg L.P.