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Tiffany board approves sale to LVMH at lower price

Tiffany’s board has agreed to a slightly lower price to greenlight the sale of the US jeweller to LVMH, according to people briefed about the matter, ending a bitter conflict triggered by the Covid-19 pandemic that threatened to derail the luxury sector’s biggest-ever acquisition.

The French luxury group behind brands such as Louis Vuitton and Christian Dior would pay $131.50 a share for the US jeweller, down from the original price of $135, valuing the equity at about $15.8bn, the people said. In addition, Tiffany would pay its shareholders a dividend of $0.58 a share, they added.

The two sides would also settle duelling lawsuits filed in the US state of Delaware in September, which were sparked when LVMH threatened to walk away from the deal.

Tiffany’s board of directors approved the revised terms at a meeting on Wednesday night, according to the people briefed. The new terms of the agreement will have to be approved by Tiffany shareholders. Two people with direct knowledge of the matter said the deal would then likely close in January given recent antitrust clearances obtained in Europe.

The peace deal means LVMH’s billionaire founder Bernard Arnault will save about $425m off the original price tag, or less than 3 per cent. 

It also shows that Mr Arnault, who has a reputation as a fierce negotiator who built his empire through acquisitions, did not really want to abandon the takeover even as he jockeyed for a lower price for months. He allowed LVMH’s lawyers to skewer Tiffany in legal filings for its “catastrophic” performance and “dismal” prospects for the future following the outbreak earlier this year of the coronavirus pandemic.

The deal, originally signed a year ago, hit the rocks in September when LVMH said it had to pull out of the transaction after the French government asked it to delay the acquisitionbecause of trade tensions between Paris and Washington. Before that, Mr Arnault had tried multiple times to lower the price of the deal without any success, claiming that the pandemic had fundamentally changed the value of Tiffany.

Some analysts questioned why LVMH had touched off such a war with Tiffany for what ended up being a relatively modest price cut. “If confirmed, the magnitude of the price tweak would be odd. It is unclear to us why LVMH and its legal team would pursue the course of action they have done since early September to secure a minimal discount to the terms originally agreed,” wrote Jefferies analyst Flavio Cereda in a note before the announcement. 

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But Mr Cereda said the strategic rationale for the tie-up remained valid because LVMH wanted to bulk up in watches and jewellery where it was smaller than rivals such as Richemont, which owns Cartier. Such “hard luxury” goods accounted for only 8 per cent of LVMH sales and 6.5 per cent of operating profits last year, while most of its profits came from “soft luxury” goods, such as Louis Vuitton handbags and apparel.

Covid-19 shook up the luxury sector’s outlook, though, as stores were forced into lockdowns and travel curbs prevented usually free-spending Chinese tourists from travelling internationally. Analysts have predicted that the sector’s sales could fall by up to 30 per cent this year and take up to three years to recover. 

Stronger than expected third-quarter sales from LVMH and Hermes recently raised hopes of a rebound after consumers in Asia and the US started buying luxury goods again this summer. LVMH shares have reversed an almost 35 per cent decline earlier this year and are now trading at about €402, only about 8 per cent off their all-time highs.

The sector’s recovery may now be in danger as a second round of lockdowns fall across Europe and France and Germany close non-essential businesses in the coming days.

Via Financial Times

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