The Lux List / Business of Luxury

LVMH CEO Bernard Arnault is considering renegotiating Tiffany acquisition deal

Bernard Arnault, the CEO of the world’s largest conglomerate might have lost as much money as Bezos has gained but he’s continuing his aggressive expansion plans adding potential renegotiation of the Tiffany deal on the table

Jun 04, 2020 | By Jonathan Ho

CEO Bernard Arnault  is the world’s foremost trendsetter, overseeing a luxury empire of 70 brands including Louis Vuitton and Bvlgari. In November 2019, LVMH made the biggest luxury brand acquisition deal since their purchase of the Italian jewellery brand. buying American jeweller Tiffany & Co for $16.2 billion. But 2020 is not off to a good start, by March, major economies were closing due to a coronavirus pandemic and Arnault has lost more money than his billionaire peers as a result. That said, the CEO of the luxury goods giant isn’t content to cower and hide, Arnault is making aggressive moves to recover lost ground.

Once the world’s 2nd-richest person, CPP-luxury reported that the coronavirus pandemic has cost Bernard Arnault more than $30 billion, in essence, losing as much money as Amazon Chairman Jeff Bezos has gained. Shares of in LVMH are down more than 17% year to date prompting the billionaire to explore ways to reopen negotiations on his $16.2 billion acquisition of US jewellery chain Tiffany & Co.

LVMH CEO Bernard Arnault is considering renegotiating Tiffany acquisition deal

Insiders speaking to Reuters on condition of confidentiality said that Arnault had conferred with advisers seeking to identify avenues for pressurising Tiffany to lower the agreed acquisition deal at $135 per share.

Acquisition of Tiffany is still a key strategy for LVMH, giving the conglomerate an instant slice of the immense US market while expanding its hard luxury portfolio in jewellery, not only the fastest growing segment of the luxury goods industry but also, as recent high profile auctions have proven: it’s most resilient, after Cartier’s Tutti Frutti bracelet beat expectations even in the current economic climate. That said, it is market conditions which now leads Arnault to believe that he might be overpaying for Tiffany.

According to Bloomberg, LVMH reported its steepest-ever declines with first-half operating profit to fall by half, prompting Arnault to cut capital expenditure by 30%-35% for 2020 while delaying infrastructure projects like renovations and expansion. In its US market, LVMH’s Sephora chain laid off 30% of store staff (over 3,000 people) in early April.

Given current economic conditions, Arnault is seeking a more equitable outcome (in his perspective). That said, there hasn’t been a decided strategy on how to pursue a price cut nor has Arnault reopened negotiations with Tiffany as there has been no legal basis to go down such a path. However, analysts say, forcing Tiffany to the bargaining table in court will result in such acrimony that future acquisitions discussions would be difficult at best.

LVMH expands ahead in adversity, capturing mind share

With global luxury sales expected to fall over 30% as the global pandemic shut international trade and global tourism, New York-based Tiffany and other retailers have had to endure another unexpected development – rioting in the streets following the death of George Floyd as a result of police brutality.

With hospitality decimated, no parties and events, LVMH, maker of 20% of the world’s Champagne hasn’t been selling much of it; Nor has masking up and work-from-home defaults made it necessary to shop at a fashion boutique (online or otherwise) nor apply cosmetics or perfume since commuting is minimal.

According to NPR, retail spending in the United States collapsed in April 2020, dropping a historic 16.4% as people avoided restaurants, bars, stores and malls, double that of the record drop of 8.3% in March with spending in clothing and accessories down an immense 78.8%.

But Arnault is no ordinary CEO, he made an extraordinary career out of astute risk taking. In the early 2000s, he outmanoeuvred Prada Group SpA by acquiring Fendi. Historically, he has invested where others have remained cautious, launching the first luxury e-Commerce emporium where others were hesitant or adversely traditional. Even with uncertainty for international tourism, with IATA expecting a return to usual levels only in 2023, LVMH is still on track to reopen its $1 billion dollar refurbishment of Samaritaine department store in Paris as a duty-free shopping hub and luxury hotel by February 2021. LVMH is also opening luxury hotel Cheval Blanc on Los Angeles’s famed Rodeo Drive stretch. Louis Vuitton is still hiring and expanding, recruiting [] to head up luxury women’s leather accessories, Givenchy is also moving forward with plans to recruit a new designer for a September fashion show even as it remains unseen how such a show will take place with social distancing measures.

Arnault in a nutshell: Big Investments, Big Returns

Pauline Brown, the former chairman of LVMH Americas told Bloomberg that, “You could divide the world’s top billionaires into highly successful risk managers and highly successful risk takers; Arnault is a highly successful risk taker. When he feels momentum and long-term potential, he uses the resources he has to go after it aggressively.”

Indeed, the investors have spoken: Throughout the pandemic, LVMH shares have held steady compared to luxury rivals – Kering Group, owner of Gucci and hard luxury competitor, Richemont, owner of the world’s most prestigious watchmakers, both conglomerates have fallen 25% and 30%, respectively. Arnault’s brands enjoy comfortable margins, and with $9.72 billion in cash reserves, Arnault can ride out the crisis while expanding.

PARIS, FRANCE – JUNE 23: Bernard Arnault during the Celine Menswear Spring Summer 2020 fashion show as part of Paris Fashion Week on June 23, 2019 in Paris, France. (Photo by Victor VIRGILE/Gamma-Rapho via Getty Images)

During an April investor call, LVMH Chief Financial Officer Jean-Jacques Guiony said, “We’ve seen very high growth rates in Mainland China. It really shows the appetite of Chinese people after two months of lockdown to come back to their previous pattern of consumption.”

Indeed, Arnault, like other luxury group CEOs are counting on China to be the source of recovery when economies re-open: China has generated more than one-third of luxury sales and two-thirds of the sector’s growth in the last 10 years; and even if the Middle Kingdom’s recovery is not as rosy, Arnault can just “revenge shop”, picking up distressed assets like prime real estate, specialty ateliers and top talents for pennies on the dollar, adding more strategic flexibility to LVMH’s already immense arsenal.


 
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