Mooted deal demonstrates the attractions of the high-end brands
Thursday 31 Oct 2019 Author: James Crux

Global luxury leader LVMH has stunned sector watchers by launching a $14.9bn all-cash takeover bid for US jewellery retailer Tiffany & Co, famed for its engagement rings and ties to Hollywood glamour.

Despite being pitched at a 22% premium to Friday’s closing price, analysts expect Tiffany to rebuff what it probably regards as a low-ball offer. A higher bid will be required to consummate a planned acquisition that clearly demonstrates the enduring allure of luxury brands, even as global growth falters and US-China trade tensions
rumble on.

Tiffany said it was ‘carefully reviewing the proposal’, yet added it was ‘not in discussions’ with LVMH, the owner of the Louis Vuitton, Christian Dior and Moët Hennessy brands.

The deal would help LVMH expand in jewellery, one of the fastest-growing segments of the luxury goods market. It could double the size and profitability of LVMH’s jewellery and watches division, a business often referred to as ‘hard luxury’.

Jonathan Buxton, partner and head of consumer at Cavendish Corporate Finance, says that if accepted, ‘this acquisition would give LVMH its long-anticipated strategic move into hard luxury. LVMH made its first move into this sub-sector in 2011, with its purchase of Bulgari, yet Bulgari alone has not given LVMH a dominant position in the sector. This acquisition would significantly enhance LVMH’s hard luxury, putting it well ahead of rival Richemont.’

The audacious acquisition would also assist LVMH in penetrating North America while consolidating its grip on Asian, with China a key region for Tiffany. ‘Comparisons to the Bulgari purchase in 2011 are hard to ignore, with Alessandro Bogliolo, the Chief Executive of Tiffany also being the CEO of Bulgari at the time of the LVMH bid in 2011’, added Buxton.

The Tiffany bid arguably shines a light on the attractions of the London-listed luxury goods groups, a small band of companies benefiting from coveted brands, pricing power and robust cash generation.

They include Burberry (BRBY), the trench coats-to-handbags business where new creative chief Riccardo Tisci is stamping his identity, and luxury watch-to-prestige jewellery retailer Watches of Switzerland (WOSG), the UK’s biggest seller of Rolex watches.

Another name on the list is the high-end fashion bags-to-footwear retailer Mulberry (MUL:AIM). And don’t forget, iconic footwear brand Jimmy Choo was taken over by US luxury retailer Michael Kors (now known as Capri) for a decent premium back in 2017.

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