Jewelry performed better than other luxury products during the pandemic, but Tiffany could have a lower result than the global jewelry market.
Photo:
carlo allegri / Reuters
Tiffany TIF 0.02%
Directors & Co. will be happy that the final obstacle to the jeweler’s precious union with LVMH LVMUY 0.29%
Moët Hennessy Louis Vuitton has been eliminated. The French buyer may be more concerned with how to make the expensive business pay off.
On Wednesday, Tiffany shareholders gave their approval for a slight reduction to the initial terms of the merger. The jewelry 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 point, feared that the transaction could collapse. They receive a 33% premium on the value of the shares before the news of the discussions between the two parties was broadcast for the first time in October 2019, even if the pandemic reduced the brand’s revenues.
Following the completion of the transaction in early January, five top Tiffany executives will receive $ 100 million worth of gold parachutes, and LVMH will begin a review.
Jewelry performed better than other luxury products during the pandemic. Global sales will fall by 15% in 2020 compared to last year’s levels, based on Bain & Company estimates. By comparison, state-of-the-art watches and clothing will drop at a double rate.
However, Tiffany may no longer perform in the global jewelry market. The company’s sales fell by a quarter in the nine months to October. He relies on tourists for a large amount of sales, especially on the Fifth Avenue flagship in New York, and his engagement ring business suffers as couples delay their marriage.
Strong demand in mainland China this year suggests the brand still has enough room to grow in Asia. The share of its e-commerce business – now a major focus for luxury companies – has doubled to 12% of the group’s sales compared to last year. And Tiffany has only one-sixth of its stores based in Europe, giving her the option to expand if and when to recover travel expenses in the region.
LVMH has a good record in terms of promoting luxury jewelry brands. When it bought Bulgari in 2011, the Italian brand had an operating margin of only 8%. By 2018, that number had tripled to about 25 percent, according to Jefferies 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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It appeared in the print edition of December 31, 2020 under the name “LVMH and Tiffany To End Merger Drama With a Short Honeymoon”.