MILAN • French tycoon Bernard Arnault has succumbed to Holly Golightly's allure. His luxury goods giant LVMH is pursuing a takeover of Tiffany & Co.
Adding the jewellery chain immortalised by Audrey Hepburn to a portfolio that includes Christian Dior and Moet & Chandon would be an affordable indulgence. It would also throw down a diamond-studded gauntlet to rivals.
Eight years after swooping on Bulgari, Mr Arnault appears ready to add to his jewellery collection. LVMH had to pay a 60 per cent premium to get its hands on the Italian brand, its first significant foray into the "hard luxury" world of watches and necklaces.
Tiffany has extra scarcity value as one of the few truly public companies in an industry full of founder-controlled brands. It would also boost LVMH's presence in the United States.
According to the Financial Times, the US$215 billion (S$293 billion) group approached the purveyor of blue-boxed trinkets with an offer worth US$14.5 billion, a 22 per cent premium to its market value last Friday, but more than 30 per cent above its average price in recent weeks.
Though the US company is likely to reject that, Mr Arnault can afford to go higher. An offer worth US$16.5 billion - equivalent to about 16 times Tiffany's expected earnings before interest, tax, depreciation and amortisation (Ebitda) this year - would leave LVMH's net debt well below two times Ebitda.
LVMH investors might swoon at such a price tag, though.
Tiffany's sales are projected to grow at a lower rate than the French group's. Shares in Tiffany have risen 22 per cent so far this year, while LVMH shares are up 49 per cent.
Without significant cost savings, the return on LVMH's invested capital would be less than 4 per cent by 2021, according to calculations based on Refinitiv estimates.
That's well below Tiffany's 8.6 per cent weighted average cost of capital, as estimated by Morningstar analysts.
Mr Arnault might be able to get away with paying less, but rivals are unlikely to sit still. A Tiffany takeover would be a direct challenge to Richemont, owner of Cartier, which dominates the hard luxury world. It would also deprive Kering of a potential target to reduce its dependence on slowing fashion brand Gucci.
"Nothing very bad could happen to you" at Tiffany, Golightly said in Breakfast At Tiffany's. Shareholders in the company's potential suitors will hope she is right.
A version of this article appeared in the print edition of The Straits Times on October 29, 2019, with the headline 'Splurge on jeweller is affordable indulgence for LVMH'. Print Edition | Subscribe
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