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Tiffany and LVMH Make Amends

A Quick Review

Iconic jewelry brand Tiffany & Co. (TIF) and French luxury goods conglomerate LVMH Moët Hennessy Louis Vuitton SE (LVMUY) have reached an agreement after weeks of tense negotiations. LVMH will buy Tiffany for a slightly lower price than the companies agreed upon previously.

Before the pandemic, LVMH had been working on a deal to acquire Tiffany, but last month the French company tried to back out of the deal, citing trade disputes between the US and the EU as the reason for the change of plans. Tiffany then sued LVMH, saying it had no legal grounds to walk away from the deal. Then LVMH countersued Tiffany, emphasizing that the pandemic had caused “devastating and lasting” effects on Tiffany’s business.

Looking at Both Perspectives

The companies have reached a new deal and an acquisition is expected to close in early 2021. LVMH will now pay $131.50 per share of Tiffany, down from the original price of $135 per share. This values Tiffany at $15.8 billion—$400 million less than the first price of $16.2 billion.

Tiffany’s board likely feels that the company being acquired at a discount is a better option than the deal falling through. For LVMH, this is still a costly purchase at a time when the future of jewelry and other luxury goods is uncertain. Analysts expect that Tiffany’s earnings will not get back to 2019 levels until 2023. However, Tiffany’s sales have recovered somewhat over the summer. Additionally, by going through with the deal, LVMH avoids the risk of losing a legal battle and avoids potential damage to its reputation.

Unique Challenges for the Luxury Goods Industry

The pandemic has put the luxury goods industry in a particularly difficult position. High-end clothing and jewelry brands depend heavily on in-person shopping and tourism, both of which have been hampered by the pandemic. Analysts at Bain predict that global luxury goods sales will decline by 20% to 35% in 2020.

Though the dispute between LVMH and Tiffany has been high-profile, many other retail companies, like L Brands (LB), the parent company of Victoria’s Secret, have also been caught in disputes over mergers recently. Investors will be eager to see if LVMH and Tiffany’s decisions will help the brands weather this difficult, uncertain period.

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