LVMH & TIFFANY: CAN THIS RELATIONSHIP STILL LEAD TO A MARRIAGE?
As with all love stories, it starts with an introduction, courting at times, and hopefully the altar or registry. But, what we often do not prepare for is divorce and it could be more chaotic especially when children are involved.
The EU (European Union) countries had an increasing rate of divorce between 1965–2017 based on the Eurostat data, and if the trend never declined till date, then, it wouldn’t be surprising to see lesser number of marriages, increased non-marital relationships/cohabiting couples and extramarital births. However, it doesn’t mean the wedding industry will disappear.
What started as a secret love affair between LVMH and Tiffany became public knowledge late last year (November 2019). Although the french luxury group, LVMH, already had other U.S. brands like Marc Jacobs and Benefit Cosmetics in its house of glamour and opulence, a marriage with the famous bride of the wedding industry, Tiffany, wouldn’t be rivalled by any other would-be brides for many decades.
The engagement ring was valued at $16.2 Billion and a date was set, the invitation letters were sent out to well-wishers. At $135 per share of Tiffany, it was a perfect match, and we believe Charles Tiffany (Founder) must have been in a joyous mood whilst his grave. It’s quite understandable if competitors in the hard luxury sector (i.e. watches and jewellery) saw this as a major threat and re-strategised to remain relevant.
However, despite the numerous elegant preparations by the groom and bride’s family, then the year 2020 ushered in Covid-19 and much other terrible news. In a just a single day, LVMH called off the wedding to his bride whose glowing beauty spans over 180 years. The news was almost unbelievable and it sent shockwaves across the hemisphere.
At Dartemuv, we believe that you can’t be too prepared for marriage despite settling all undesirable issues before the union and there are usually different reasons why it could be delayed or cancelled. In the case of LVMH, the french luxury brand cited a request received from the French government on August 31 to delay the deal beyond January 6 due to threat of possible trade war with the U.S. including the disruption caused by the pandemic. It’s worth noting that the threat of the increased tariff on French luxury goods by the U.S. is a direct response to the taxes imposed by France on technology companies which affect the U.S. top tech giants such as; Amazon and Google.
Whether the reasons stated by LVMH was true or not, pulling out of a wedding isn’t something we see every day and many brides wouldn’t want to experience such a day. According to Tiffany, they weren’t treated as an interested party in the relationship since the original draft letter which LVMH received from the French government wasn’t shown to them. Tiffany saw this as a breach of their initial agreement which can only be settled by a court of law, and as a result, it filed a lawsuit in the Delaware Court of Chancery.
LVMH has wasted no time in countersuing Tiffany, stating that Tiffany’s top five executives could receive $100 Million in bonuses if the deal goes ahead. Also, it accused Tiffany of paying large dividend despite losses and taking on extra debt.
“The business LVMH proposed to acquire in November 2019 — Tiffany & Co, a consistently highly-profitable luxury retail brand, no longer exists,” LVMH said in a court document. Based on our observation at Dartemuv, it’s now 11 months since both companies had the agreement, but Tiffany was trading at a share price of $116.03 (as at previous close; October 1st, 2020) with a Market Capital of $14.089 Billion. But truly, a 14% drop in share price is a lot especially when a company’s number of shares outstanding is much.
With this new figure ($14.089) stated earlier, it’s quite uncertain if LVMH will be interested in paying the initially agreed amount ($16.2 Billion) or reduce the payment by $2.1 Billion. The coronavirus pandemic isn’t even helping at the moment, the fashion industry has been hit hard enough with some major brands filing for bankruptcy. LVMH might be protecting itself from the possibility of low patronage due to widespread layoffs and the lockdown, but at Dartemuv, we do not think the shutdown will be forever.
We believe the deal would have been a win-win for both parties by conquering North America and China at the same time resulting in increased earnings, but it’s never too late as anything is still possible. However, if the two famous luxury brands decide to remain single, it wouldn’t discourage us from patronising some of their finest products.
As for Tiffany, it’s a sought-after brand and finding eligible suitors to ask for her hand in marriage is just a matter of time, but if nobody comes to meet the Tiffany family, we hope the company will continue to age gracefully and we can all celebrate 200 years of existence with the company in awesome financial health.
As usual, the Dartemuv team just want to say thank you for reading this article, hope it was insightful and we promise to bring you more……
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