LVMH and Tiffany to have short honeymoon

On Wednesday, Tiffany’s shareholders gave their approval for a slight discount to the original merger terms. The jeweler now has a sticker price of $15.8 billion, down from $16.2 billion. It is still a good result for investors who at one stage feared the deal could collapse. They cash out at a 33% premium to the value of the shares before news of talks between the two sides first leaked in October of 2019, even though the pandemic has shrunk the brand’s revenue.

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After the deal closes in early January, five top executives at Tiffany will receive golden parachutes worth $100 million in total, and LVMH will begin an overhaul.

Jewelry has performed better than other luxury products during the pandemic. Global sales will be down 15% in 2020 compared with last year’s levels based on Bain Company estimates. By comparison, high-end watches and clothing will decline at double that rate.

Tiffany might still underperform the global jewelry market, though. The company’s sales were down by one-quarter over the nine months through October. It relies on tourists for a chunk of sales, particularly at its Fifth Avenue flagship in New York, and its engagement-ring business is suffering as couples delay marriage.

Strong demand in mainland China this year suggests the brand still has plenty of room to grow in Asia. The share of its e-commerce business—now an important focus for luxury companies—has doubled to 12% of group sales from last year’s level. And Tiffany only has one-sixth of its stores based in Europe, giving it the option to expand if and when tourist spending recovers in the region.

LVMH has a good record in taking jewelry brands upmarket. When it bought Bulgari back in 2011, the Italian brand had an operating margin of just 8%. By 2018, that number had roughly tripled to 25% according to Jefferies estimates. Now that the drama of this merger is over, the work needed to polish up Tiffany can begin.

This story has been published from a wire agency feed without modifications to the text.