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The $16.2 billion deal, the largest ever in the luxury sector, will give LVMH a bigger foothold in the United States, help Tiffany in Europe and bolster growth prospects in China.
It will also cement the status of Bernard Arnault, its chairman and chief executive, as the most acquisitive dealmaker in the luxury business.
“Tiffany is an American icon and was on the list of brands for a long time we thought was a good potential match,” Arnault said from Paris.
The acquisition would add a prominent U.S. name to the LVMH stable of brands, which includes Dior, Givenchy, Fendi and Dom Pérignon. The deal would help propel the French luxury company into a leadership position not only in traditional soft luxury goods like clothing and handbags, but also what is known as the hard luxury sector, which includes watches and jewelry.
Some analysts expect Monday’s announcement to kick off other deals as brands fight to compete in a world of behemoths like LVMH and Richemont.
“We expect this to be the starting gun for a further round of industry consolidation in the luxury sector over the next 12-18 months, with the significant polarization we continue to see between the stronger and weaker brands,” said Swetha Ramachandran, an investment manager at GAM Global Luxury Brands Fund.
The agreement with Tiffany, known for its signature blue boxes and the Audrey Hepburn film “Breakfast at Tiffany’s,” marks its second major investment in a U.S. brand this year after it created a new luxury house, Fenty, with Rihanna, the multi-hyphenate singer-actor-style setter.
Arnault, who has in recent years swept brands like Belmond, the luxury travel group that owns hotels such as the Cipriani in Venice, and Rimowa luggage into the fold at LVMH, said he first went to Tiffany’s Fifth Avenue store when he was living in New York in the 1980s. And he has kept an even closer eye on the brand over the past 18 months as he has mulled over other acquisition opportunities.
The deal will leverage LVMH’s presence and expertise in China to help Tiffany grow in the region, where they will look to bring more of their goods to mainland consumers in an effort to tap into their spending power. Chinese tourist spending has been hit hard by the depreciation of the yuan, the trade war between the United States and China and protests in Hong Kong. Arnault said he also believed the brand had real potential to expand its reach in Europe.
Tiffany is “strong in the U.S. and Japan, but weak in Europe and not up to growth in China,” Arnault said. “There we can help a lot, find the best locations.”
Arnault hopes that he can follow the same model at Tiffany that helped bolster sales and profitability at Bulgari, which LVMH acquired in 2011.
“We will focus on building long-term desirability,” he said. “When you are an independent brand listed on the American stock exchange your goal has to be the next quarter profit. We can free them to have a different state of mind in the company.”
LVMH’s share price opened 1.8% higher after the deal was announced.
The deal, which still requires the approval of Tiffany’s shareholders, is expected to close in the middle of next year.
Beside Tiffany’s business and growth prospects, and the fact that, like Louis Vuitton, it was sold only through its own network of stores, Arnault said he was also attracted to one unusual aspect of Tiffany profile.
“It’s the only brand I know that owns a color,” he said.