Rumors had been circulating earlier this month that a new mega-merger in the retail-jewelry business could be brewing. However, it appears that over the weekend these rumors have been officially confirmed. The luxury brand giant and parent company behind Louis Vuitton officially signed the paperwork to buy out the struggling American jewelry giant Tiffany’s for $16.3 billion. It marks the biggest acquisition in the company’s history as well as a major bet that it can help the jewelry retailer turn things around.
The Wall Street Journal reported early on Monday morning that the parent company that owns Louis Vuitton and Bulgari, LVMH Moët Hennessy Louis Vuitton SA, confirmed that it had reached a deal to buyout Tiffany for $16.3 billion, a valuation that would put Tiffany at $135 per share. Considering that the stock was closed on Friday around $125 per share, it’s likely that Tiffany will jump by around 8% or so over the course of the trading day.
Tiffany’s has been struggling with weak demand in its main domestic market in the U.S, but also in international markets as well. The 182-year-old company has over 300 stores around the world, which bring in $4.4 billion in revenue. However, around $2 billion of that comes from the Asian market. As such, the American jewelry brand has been making a major bet on the Chines economy, hoping that the fast-rising incomes of many in the eastern nation will help boost sales. However, even this is still uncertain, as the Chinese economy has been showing signs of weakness, such as faltering manufacturing growth.
This $16.3 billion acquisition would also be the largest M&A deal of the luxury brand company. At the moment, LVMH owns 75 different luxury brands and has become one of the largest European companies with an overall market worth of around $220 billion.
The deal seems like a good fit for both parties, with Tiffany’s management figuring that they can better stage a turnaround with the support of Louis Vuitton’s extensive network and experience in the luxury retail world. At the same time, it’s a good deal for Louis Vuitton, but being the largest acquisition in the company’s history, its definitely a major bet on Tiffany and that under new ownership that the company will stage a turnaround. Time will tell whether this proves to be the case or not.
At the time of writing this article, shares of Tiffany are up around half a percent in after-hours trading. It wouldn’t be surprising if the jewelry-brand shoots up by an extra $10 dollars or so, matching the proposed offer from Louis Vuitton, and could be a good opportunity for traders looking to trade the news.
Tiffany’s Company Profile
Tiffany is a monobrand jeweler with a 180-year history. It is vertically integrated, with around 60% of jewellery produced internally. Tiffany is present in over 20 countries globally, with over 300 own stores. Its biggest market is its home market, the U.S.; however, Europe and Asia-Pacific have shown the strongest growth in recent years. Engagement jewellery contributes 26% of sales, the remainder being designer jewellery and other collections. – Warrior Trading News
