LVMH’s Bernard Arnault May Prefer Cartier to Tiffany

A Love bracelet is all you need. Photographer: Richard Corkery/NY Daily News Archive via Getty Images Photographer: Richard Corkery/NY Daily News Archive via Getty Images Ever since LVMH Moet Hennessy Louis Vuitton SE said it was walking away from Tiffany & Co., the question has been why? The obvious answer […]

A Love bracelet is all you need.

Photographer: Richard Corkery/NY Daily News Archive via Getty Images

Ever since LVMH Moet Hennessy Louis Vuitton SE said it was walking away from Tiffany & Co., the question has been why?

The obvious answer is that LVMH chairman Bernard Arnault is trying to shave the $16 billion purchase price that now looks too high given the damage inflicted on the luxury industry by Covid-19. But saving a couple of billion dollars is a rounding error to a company with a market capitalization of about $240 billion. It could hardly be worth getting dragged into an acrimonious fight.

Another possibility is that he’s interested in pursuing alternative opportunities. One recurring scenario among the market speculation is that LVMH could look to make a bid for Cartier-owner Cie Financiere Richemont SA. 

Bling Battle

The majority of investors think Bernard Arnault is after a discount rather than another deal

Source: Bernstein, Procensus

LVMH needs to bulk up in the faster-growing jewelry market, where it lacks scale — that’s why it struck the deal with Tiffany in the first place. Richemont is currently the world’s biggest branded jeweler by market share, according to Bloomberg Intelligence. And it’s not just thanks to Cartier, which has gained a strong following among millennials. Richemont also owns Van Cleef & Arpels.

Unlike Tiffany, Richemont is not a pure jeweler. It has a sizeable watch business, as well as pen-maker Montblanc and a collection of fashion-and-accessories brands including Chloe and Dunhill. And then there is Yoox Net-a-Porter, a luxury online retailer.

Glittering Prize

Both Cartier and Tiffany have strong social media momentum

Source: Bernstein

Richemont would be a much bigger acquisition for LVMH than Tiffany, giving Arnault an even more dominant position in luxury. Annual sales of the combined group would be four times that of nearest rival, Gucci-owner Kering SA.

A deal of this size isn’t impossible for LVMH. The Geneva-based Richemont has a market capitalization of about 35 billion Swiss francs ($38 billion). Assuming the 30% premium that investors would typically expect, that would mean an offer price of about 45.5  billion francs, equivalent to about three times the price of Tiffany. Even at this level LVMH’s net debt at the end of 2021 would still be less than 2.5 times the estimated Ebitda for the combined group.

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