With growing rumors that Bernard Arnault might be trying to renegotiate a lower price for LVMH’s acquisition of Tiffany, the French luxury group said last Thursday that it will not buy any jewelry stock at the present time.
“Considering recent rumors, LVMH confirms that it is not considering buying Tiffany shares in the market this time,” the luxury conglomerate said in a statement published Thursday morning. The statement suggests that the planned acquisition will continue, however at a later time. The wording seems deliberately ambiguous, suggesting the likelihood that Arnault, the richest man in Europe today, may be trying to pay a lower price for New York’s famous jewelry.
Tiffany’s share price was severely affected following the publication of a report in the fashion publication WWD that Arnault was having doubts about Tiffany’s high purchase price. Given the current situation, with the luxury industry heavily affected by the Covid-19 and recent protests in the United States this is seen as a real possibility.As already indicated, after protracted negotiations, LVMH, the world’s largest luxury conglomerate, had agreed in November 2019 to buy Tiffany for $16 200 million at $135 per share. The agreement, the largest acquisition ever made in the luxury sector, was announced as a move to significantly boost LVMH’s presence in North America and in the watch and jewelry business
However, after WWD reported that Arnault had convened a board meeting in Paris on Tuesday evening, June 2, everything seemed to suggest that LVMH’s president and principal shareholder and controller could have changed his mind. Tiffany shares fell by more than 10 % to a value of $114,24 per share on the New York Stock Exchange.This meant that LVMH could acquire Tiffany shares much cheaper on the market than in its previous agreement.
In a subsequent statement, it was stated that “the LVMH Moët Hennessy Louis Vuitton board met on Tuesday, 2 June 2020, and focused on the development of the pandemic and its potential impact on Tiffany & Co.’s outcomes and prospects with regard to the agreement linking the two groups”.Some observers in Paris speculate that LVMH deliberately leaked the information at Tuesday’s board meeting to WWD, to reduce the price of Tiffany’s shares in the market, giving Arnault more ability to renegotiate a lower purchase price. According to reliable reports, LVMH is also concerned that Tiffany is unable to meet some of its debt obligations after the acquisition is completed, this could, in theory, give LVMH a legitimate legal excuse to disassociate itself from the previous agreement and renegotiate the purchase in more advantageous terms. Given the fall in the luxury business in the past two months, observers have suggested that weaker cash flows could prevent Tiffany from respecting its debt agreements. In fact Tiffany was due to have published its quarterly results on Friday, but delayed it until Tuesday.
The multiple calls to LVMH executives requesting more comments on the brief statement have not been addressed. The pandemic crisis has undoubtedly changed the situation and also the reality of supply and demand.
Source: Fashion Network