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Tiffany Not Up Scale Enough for Louis Vitton
Tiffany & Co. considers itself the world's premier jeweler since 1837. For the French, that may simply not be good enough.
Early last week rumors abounded that French luxury-goods house LVMH Moet Hennessy Louis Vuitton was considering a bid. Tiffany (TIF) shares advanced more than 8% to $40.46 in a single day, their biggest percentage gain in two and a half years.
While a bid from LVMH would help Tiffany expand abroad more quickly, some analysts warn that the blue-box brand may not be sufficiently upscale for the French luxury empire.
LVMH could well afford the transaction, even assuming a bid of $50 a share, or a roughly 25% premium, though the rationale for a tie-up remains dubious, said analysts at Societe Generale.
A merger could or could happen. The SocGen analysts said Tiffany has a "mid-range" positioning in the market, while LVMH has indicated it would like to shift even further upscale in the jewelry segment.
Although Tiffany is perhaps best known for selling diamond engagement rings -- the company claims to have introduced the ring as it is now known -- it derives a significant percentage of sales from its silver jewelry collection. This features trademark items such as its $125 heart tag charm bracelet.
What's more, Tiffany recently emphasized the opportunities it sees in that silver jewelry segment, saying it want to in wants to increase store traffic by driving more business at more modest price points.
On the other hand, a merger with LVMH would greatly benefit Tiffany to expand in International markets and increase the number and quality of name brands that it can sell with the Tiffany name. LVMH has huge marketing clout in Europe and this would positively help Tiffany's sales.
Finally, Tiffany may find it hard to avoid a merger. The company abandoned poison pills that could have protected it when it voted in early 2006 to terminate the right to issue shares in case of a hostile bid.
Stay tuned.
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