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Sydnee Gatewood
Sydnee Gatewood
Articles (3148) 

LVMH, Tiffany Cut Price Tag on Luxury Takeover

The French company snagged a $425 million discount following legal spat

October 29, 2020 | About:

After a short-lived legal battle, French luxury retailer LVMH Moet Hennessy Louis Vuitton SE (XPAR:MC) and iconic jeweler Tiffany & Co. (NYSE:TIF) announced on Thursday they have renegotiated their $16.2 billion takeover agreement that was shelved back in September as a result of headwinds related to the Covid-19 pandemic.

The new price was set at $131.50 per share, down from the initial price tag of $135 per share set in November 2019. In total, LVMH will pay about $15.8 billion for the New York-based company.

While the new price is an overall discount of $425 million, the two companies said the other key terms of the agreement remain unchanged. By acquiring Tiffany, LVMH is hoping to boost its jewelry and watches business, expand in one of the fastest-growing industry segments and strengthen its presence in the U.S.

In a statement, LVMH President and CEO Bernard Arnault noted he is confident the combination will be beneficial to both companies.

"We are as convinced as ever of the formidable potential of the Tiffany brand and believe that LVMH is the right home for Tiffany and its employees during this exciting next chapter," he said.

The biggest-ever deal in the luxury industry ran into trouble after coronavirus-related lockdowns shuttered stores around the world and curbed international travel, hampering demand for luxury goods and sending Tiffany's global net sales down 29% in the second quarter.

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After initially contemplating renegotiating the deal in June, the two companies agreed in August to extend its closing to November. Tiffany then requested to push it back even further to Dec. 31. LVMH also said the French government asked in a letter to delay it beyond Jan. 6, 2021 due to the U.S. potentially implementing tariffs on its goods.

As a result of these developments, the Louis Vuitton owner said in a press release it would not be able to complete the acquisition before the end of the year since it would need more time to determine any potential impacts from the tariffs.

In response, Tiffany filed a lawsuit in Delaware to enforce the agreement, arguing that the request from the French government has no basis in law. The case, which had been scheduled to be heard in early January, will also be settled.

"We are very pleased to have reached an agreement with LVMH at an attractive price and to now be able to proceed with the merger," Tiffany Chairman Roger N. Farah said. "The Board concluded it was in the best interests of all of our stakeholders to achieve certainty of closing."

Tiffany CEO Alessandro Bogliolo also expressed his excitement for the deal, saying he "continue[s] to believe in the power and value" of the brand as well as "the compelling long-term strategic and financial benefits of this combination."

The transaction, which has already received regulatory clearance but is still waiting for Tiffany shareholder approval, is now expected to close in early 2021. Under the terms of the agreement, the jeweler will also pay a quarterly dividend of 58 cents per share on Nov. 19.

Following the announcement, shares of Tiffany were up 0.72% at $130.82 on Thursday morning, while LVMH was up 0.22% at 403 euros ($469.96) on the Paris exchange. Year to date, both stocks have declined around 2%.

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Disclosure: Long Tiffany.

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About the author:

Sydnee Gatewood
I am the editorial director at GuruFocus. I have a BA in journalism and a MA in mass communications from Texas Tech University. I have lived in Texas most of my life, but also have roots in New Mexico and Colorado. Follow me on Twitter! @gurusydneerg

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