Jewelry outperformed other luxury goods during the pandemic, but Tiffany could still outperform the global jewelry market.
Photo:
Carlo Allegri / Reuters
Tiffany TIF 0.02%
& Co. executives will be pleased to see the latest hurdle to the jeweler’s bumpy union with LVMH LVMUY 0.29%
Moët Hennessy Louis Vuitton has been removed. The French buyer may be more concerned with how to make the expensive deal pay off.
On Wednesday, Tiffany shareholders approved a small discount on the original merger terms. The jeweler now has a sticker price of $ 15.8 billion, down $ 16.2 billion. It is still a good outcome for investors who at one point feared the deal could fail. They are cashing in at a 33% premium to the value of the stock before news of talks between the two parties first leaked out in October 2019, even as the pandemic has shrunk the brand’s earnings.
After the deal closes in early January, five of Tiffany’s top executives will receive gold parachutes worth a total of $ 100 million, and LVMH is embarking on an overhaul.
Jewelry outperformed other luxury products during the pandemic. Global sales in 2020 will be 15% lower than last year based on Bain & Company estimates. In comparison, high-quality watches and clothing will deteriorate twice as fast.
However, Tiffany may still underperform the global jewelry market. The company’s sales fell by a quarter in the nine months to October. It relies on tourists for some of its sales, especially on New York’s flagship Fifth Avenue, and its engagement ring business suffers 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 a major focus for luxury companies – has doubled to 12% of group sales from last year’s level. And Tiffany only has a sixth of its stores in Europe, giving it the opportunity to expand as and when tourist spending rebounds in the region.
LVMH has a good track record of marketing jewelry brands. When it bought Bulgari in 2011, the Italian brand had an operating margin of only 8%. By 2018, that number had roughly tripled to 25%, according to Jefferie’s estimates. Now that the drama of this merger is over, the work needed to polish Tiffany can begin.
Write to Carol Ryan at [email protected]
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Appeared in the December 31, 2020 print edition as ‘LVMH and Tiffany To End Merger Drama With a Short Honeymoon.’