Tiffany Board approves sale to LVMH at a lower price

Tiffany’s board of directors has agreed a slightly lower price to go ahead with the sale of the U.S. jeweler to LVMH, according to those informed. This ended a bitter conflict that was triggered by the Covid-19 pandemic and threatened to derail the largest acquisition in the luxury sector ever.

The French luxury group, which stands behind brands like Louis Vuitton and Christian Dior, would pay $ 131.50 per share for the U.S. jeweler, compared to the original price of $ 135, and value equity at about $ 15.8 billion . In addition, Tiffany would pay its shareholders a dividend of $ 0.58 per share, they added.

The two sides would also settle dueling lawsuits filed in the State of Delaware in September that were sparked when LVMH threatened to back out of the deal.

Tiffany’s board of directors approved the revised terms at a Wednesday evening meeting, according to the briefed. The new terms and conditions must be approved by Tiffany shareholders. Two people with direct knowledge of the matter said the deal is expected to close in January, given recent antitrust clearances in Europe.

It is unclear to us why LVMH and its legal team would pursue the measures taken since early September to get a minimal discount on the originally agreed terms

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

It also shows that Mr. Arnault, who has a reputation as a fierce negotiator who built his empire through acquisitions, didn’t really want to give up on the takeover even though he fought for months to get a lower price. He allowed LVMH attorneys to impale Tiffany in legal records for his “disastrous” performance and “dire” prospects for the future following the coronavirus pandemic outbreak earlier this year.

The deal, originally signed a year ago, faltered in September when LVMH said it was forced to pull out of the deal after the French government asked it to delay the deal due to trade tensions between Paris and Washington. Previously, Mr Arnault had tried unsuccessfully on multiple occasions to bring the store down, claiming the pandemic had fundamentally changed the value of Tiffany.

Some analysts wondered why LVMH started such a war with Tiffany over a relatively modest price cut. “If this were confirmed, the extent of the price change would be odd. It is unclear to us why LVMH and its legal team would pursue the measures taken since early September to get a minimal discount on the originally agreed terms, ”Jefferies analyst Flavio Cereda wrote in a note prior to the announcement.

But Mr Cereda said the strategic rationale for the merger remained valid as LVMH wanted to focus on watches and jewelry that were smaller than rivals like Richemont, which Cartier owns. Such “hard luxuries” accounted for only 8 percent of LVMH sales and 6.5 percent of operating profit last year, while most of the profits came from “soft luxuries” such as Louis Vuitton handbags and clothing.

However, Covid-19 rocked the outlook for the luxury sector as shops were forced to lockdown and travel restrictions usually prevented free-traveling Chinese tourists from traveling internationally. Analysts have predicted the sector’s revenue will fall by up to 30 percent this year and the recovery could take up to three years.

Stronger than expected LVMH and Hermes sales in the third quarter recently raised hopes of recovery after consumers in Asia and the US returned to luxury purchases this summer. The LVMH share reversed a decline of almost 35 percent earlier this year and is now trading at around 402 euros, only around 8 percent below its all-time high.

The sector’s recovery could now be in jeopardy as a second round of lockdowns in Europe and France, as well as Germany, will shut down non-essential businesses in the coming days.