LVMH Won The Tiffany Full Net Boiling, But This Is Probably A Hot Potato.

Local time November 25th, LVMH, the world's largest luxury goods group, announced in its official website that LVMH and the global luxury jeweler Tiffany have reached an agreement that they will acquire Tiffany at a cash price of $135 per share, and the transaction price will reach $16 billion 200 million, and the transaction is expected to be completed in 2020. So far, the deal will be the most expensive acquisition in the history of LVMH group, and it is also the second largest merger in the history of the United States.


LVMH chairman and CEO Barnard Arnualt said in a statement: "we respect and admire Tiffany very much. We will develop this jewelry brand with our dedication and commitment to every jewelry family to ensure that Tiffany will continue to flourish in the coming centuries." Tiffany chairman Roger N. Farah also said that the deal with LVMH would provide an exciting development path for Tiffany, and this deal also gave shareholders a convincing share price. After announcing the takeover news in LVMH, the price of Tiffany's products rose by around 10%.


LVMH is heavily buying Tiffany as a short board in the jewelry industry. In the first half of this year, the group jewelry watch business achieved 213 million 500 thousand euros in revenue, accounting for 8.51% of group revenue, while the proportion of fashion leather products contributed to the group's revenue reached 41.56% during the same period.


As a LVMH competitor, Kai Yun group and Lifeng group are also accelerating the layout of jewelry industry. At present, the company has not only Boucheron, Pomellato, Quelin and other jewelry brands, but also its core brand Gucci has launched a boutique jewelry line, and the first high-end jewelry store has opened in Paris. Jewelry has become one of the fastest growing businesses in the luxury sector, according to data from Bain, a consultancy. In 2018, the global jewellery market grew by 7% to 18 billion euros.


Jewelry implements? Hot potato? Hard to say


Tiffany was founded in 1837, and is popular all over the world by its iconic blue box and the 1961 movie Tiffany breakfast, which is starred by Audrey Hepburn. But in recent years, Tiffany's performance has not been satisfactory.


From the beginning of 2015, Tiffany continued to grow negatively for the 7 consecutive quarter. The dismal performance forced the company to undergo a series of changes, such as the management of blood transfusion, expansion of product categories, and the younger marketing methods. In addition to increasing advertising efforts, launching new products and renovating the flagship store in New York, the brand has also introduced pendant and earrings, which are more affordable products to meet the needs of young people. In 2017, Tiffany opened the "net red" cafe, trying to pull in the psychological distance from young customers, and let Tiffany fans have a "punch card" place. But this move has not played a substantial role in improving performance.


According to the Tiffany2019 semi annual report, the company's global net sales fell 3% to 2 billion 100 million US dollars in the first half of the year, and net income fell 9% to 261 million US dollars compared with the same period last year. The largest US market company's sales decreased by 4% compared with the same period last year.


Every merger and acquisition is a combination of interests and risks. Earlier reports said that if LVMH raised the purchase price of Tiffany to $130 per share, Tiffany's revenue growth must increase to 11% annually to get a positive return. However, some analysts expect Tiffany sales to grow or less than 1% this year, while LVMH must increase Tiffany's revenue growth to 9% per year in the next five years and increase its operating margin to 24%.


It is worth noting that in the semi annual report of Tiffany2019, the Asia Pacific region performed best. In terms of constant exchange rate, sales in the Asia Pacific region increased by 3%, and the Chinese market accounted for about 60% of the Asia Pacific region, which has become the engine of the region's sales growth. Tiffany is paying more and more attention to the Chinese market. Its chief executive, Alessandro Bogliolo, said in its first half year earnings call conference: "we will continue to increase investment in the Chinese market and further penetrate the market of Chinese consumers."


As of press release, Tiffany shares rose 6.17% in the US.