Is LVMH Also Getting Rid Of The Acquisition Of Tiffany?

Six months ago, when LVMH, the world's largest luxury group, decided to spend $16 billion 200 million on the acquisition of Tiffany, the biggest acquisition in the industry, it was believed to change the competitive landscape of the luxury goods industry, Tiffany. But today, the pen is also unknown because of the turbulent situation.

The board of directors of the LVMH group held a meeting in Paris on Tuesday to discuss the acquisition of Tiffany. Although no specific decision has been made, the participants clearly stated that the acquisition should be reconsidered, according to a WWD source quoted by people familiar with the matter. As soon as the news came out, Tiffany shares fell, and fell to 8.9% to 117.03 dollars as of Tuesday's close, down more than 15% compared with the original purchase price, and the largest single day decline since 2015.

Yesterday evening, sources close to the two sides told Reuters that LVMH Group Chairman and chief executive officer Bernard Arnault was considering whether she could argue that Tiffany violated the obligations stipulated in the purchase agreement to put pressure on the brand to reduce the previous transaction price of $135 per share. But Tiffany believes there is no legal basis to support the renegotiation of the deal, and sources said the brand complied with the contract. However, the LVMH group has not yet asked Tiffany to resume negotiations, nor has it decided whether to lower the purchase price.

In addition to the damage that the new crown has caused to the US economy and its possible economic uncertainty, the recent outbreak of anti racism protests has further exacerbated the concerns of the LVMH board. The Americas region is Tiffany's largest market, accounting for 43% of its net sales in fiscal 2019. Through Tiffany to expand the group's influence in the US market, this is also one of the reasons for attracting LVMH to buy. But as the environment becomes unstable, Tiffany, who has closed all the stores in the United States, still has its own problem of low performance. It is doubtful that it will contribute to LVMH's further opening up the US market.

It is precisely because of the downturn in the retail environment that LVMH is uncertain about the ability to pay all debts at the end of the transaction. The luxury goods giant's first quarter sales fell by 15%, its first quarterly decline in the past 10 years. If the cost is high, it will not be the best choice to take Tiffany's income and solve the possible debt problem. The group's own watch and jewellery business dropped by 24% in the first quarter, and its annual growth rate was only 4% in 2019, which has always been its weakness. If we want to compete with the top group in the field of luxury and luxury, LVMH must first ensure that Tiffany and its future prospects can bring a great deal of success to the group.

However, it is not known how much Tiffany has lost so far this year. On Monday, the brand held its first annual online shareholders' meeting, which focused on 10 board members' turnover, corporate accounting firms and executive compensation. It did not mention the challenges posed by the epidemic to the brand or the topic related to the acquisition of LVMH. Its chief executive, Alessandro Bogliolo, only stressed that "2019 is a year of progress in all strategic initiatives", while sales in mainland China achieved a strong two digit growth.

Before all the 2020 storms, Tiffany saw the potential of the Chinese market and developed it into its third largest market. The exhibition of Shanghai Fuxing Art Center signed a contract with Tmall luxury Luxury Pavilion, the e-commerce business launched by the brand Chinese official website, the readjustment of flagship stores in Beijing, Hongkong and Shanghai, and the landing of second Blue Box cafes in the world, all of which are the embodiment of the brand's accelerated layout of the Chinese market. The brand also announced yesterday that it was the spokesperson of "Tiffany T", the 00 China actor, and released relevant videos and advertising blockbusters.

BoF released the "2020 fashion business report - the new crown update update" pointed out that unless there are second waves of outbreak, otherwise China's "beginning to settle" market will soon recover. The Asia Pacific region driven by China may help Tiffany find new growth engines to ease losses in the US market and help the brand continue to retain interest in LVMH acquisitions. According to a recent HSBC survey, Tiffany is one of the first choice jewelry brands in mainland China, behind Cartire (Cartier).

Some analysts also believe that LVMH is still committed to the deal because the company has always looked at the long term. LVMH questioned the takeover's failure in March. The source also told Reuters that although Arnault is worried that the purchase price may be too high, he still believes in the strategic significance behind the deal.

Arnault also announced earlier this year that in the next ten years, the goal would be to double Tiffany's income and increase operating profit by five times. Historically, he has rarely been drawn back by crisis or risk. "Arnault is a very successful risk takers," said Pauline Brown, former chairman of LVMH Americas. When he feels the power and long-term potential, he will use his resources to actively pursue.

However, considering the dual impact of the current situation, it is not surprising that LVMH decided to re-examine the acquisition of Tiffany. According to Bloomberg billionaire index, Arnault's net assets have shrunk by more than 30 billion dollars before the outbreak, and LVMH's share price has fallen by 20% this year. It is indeed a safer consideration to make sure that the situation is settled.

Luca Solca, director of luxury analysis at Bernstein (Bernstein) of the investment bank, pointed out in the report that whether LVMH will try to renegotiate for better trading conditions is still unknown.