Tiffany board approves sale to LVMH at lower price

Tiffany’s board has agreed to a slightly lower price to give the green light for the sale of the American jeweler to LVMH, according to people briefed on the matter, ending a bitter conflict sparked by the Covid-19 pandemic that threatened to derail the largest. acquisition ever made by the luxury sector. .

The French luxury group behind brands like Louis Vuitton and Christian Dior would pay $ 131.50 a share for the American jeweler, down from the original price of $ 135, valuing the capital at about $ 15.8 billion, the people said. In addition, Tiffany would pay its shareholders a dividend of $ 0.58 per share, they added.

The two sides would also settle grieving lawsuits filed in the US state of Delaware in September, which were sparked when LVMH threatened to drop the deal.

Tiffany’s board of directors approved the revised terms in a meeting Wednesday night, according to the people briefed. The new terms of the agreement will need to be approved by Tiffany shareholders. Two people with direct knowledge of the matter said the deal would likely close in January, given recent antitrust clearances obtained in Europe.

It is not clear to us why LVMH and its legal team would follow the course of action they have taken since the beginning of September to secure a minimum discount on the originally agreed terms.

The peace deal means that LVMH billionaire founder Bernard Arnault will save about $ 425 million from the original price, or less than 3 percent.

It also shows that Arnault, who has a reputation for being a fierce negotiator who built his empire through acquisitions, really did not want to abandon the acquisition, even as he struggled for a lower price for months. It allowed LVMH attorneys to criticize Tiffany in legal filings for her “catastrophic” performance and “dire” prospects for the future following the outbreak earlier this year of the coronavirus pandemic.

The deal, originally signed a year ago, hit the rocks in September when LVMH said it had to pull out of the transaction after the French government asked it to delay the acquisition due to trade tensions between Paris and Washington. Before that, Arnault had tried several times to lower the price of the deal without success, claiming that the pandemic had fundamentally changed the value of Tiffany.

Some analysts questioned why LVMH had started such a war with Tiffany for what ended up being a relatively modest price cut. “If confirmed, the magnitude of the price change would be strange. It is not clear to us why LVMH and its legal team would follow the course of action they have taken since the beginning of September to secure a minimum discount on the originally agreed terms, ”wrote Jefferies analyst Flavio Cereda in a note before the announcement.

But Cereda said the strategic rationale for the union remained valid because LVMH wanted to increase the volume of watches and jewelry where it was smaller than rivals like Richemont, who owns Cartier. These “hard luxury” items accounted for only 8 percent of LVMH’s sales and 6.5 percent of operating profit last year, while the majority of its profits came from “soft luxury” items such as Louis Vuitton bags and clothing.

However, Covid-19 shook the prospects for the luxury sector, as stores were forced to close and travel restrictions prevented normally free-spending Chinese tourists from traveling abroad. Analysts have predicted that the sector’s sales could fall by as much as 30 percent this year and take up to three years to recover.

Stronger-than-expected third-quarter sales from LVMH and Hermes recently raised hopes for a rebound after consumers in Asia and the US started shopping for luxury items again this summer. LVMH shares have reversed a fall of almost 35 percent earlier this year and are now trading at around 402 euros, only about 8 percent from their all-time highs.

The recovery of the sector may now be in jeopardy as a second round of lockdowns in Europe falls and France and Germany close non-essential deals in the coming days.