Tiffany & Co likely to play hard to get as LVMH awaits answer

[HONG KONG] Your move, Tiffany & Co.

That was the message from LVMH, the French luxury group that went public this week with a proposed US$14.5 billion takeover of the storied American jeweller.

After eyeing Tiffany for years, LVMH submitted an offer last month as it enjoys record cash flow and revenue while the blue box company struggles with falling sales and flattening profits, according to people familiar with the matter, who asked to not be identified because details of the discussions aren't public.

Antonio Belloni, a board member at LVMH, traveled to New York on Oct 15 to present the takeover offer to Tiffany chief executive officer Alessandro Bogliolo, a former chief operating officer of LVMH-owned Bulgari, the people said.

While Mr Belloni spoke with Tiffany chairman Roger Farah after the initial proposal, the two companies haven't engaged in discussions since then, the people added.

Tiffany is expected to reject the offer as being too low as early as this weekend, they said. Its board is meeting Sunday, according to people familiar with the matter.

Its board is carefully reviewing the proposal with the assistance of advisers to determine what's best for the company and its shareholders, Tiffany said in a statement Monday. A representative for Tiffany declined to comment. A representative for LVMH also declined to comment.

BULGARI'S MULTIPLE

A key reason it is likely to rebuff the offer: Its senior executives believe the company should command a similar earnings multiple to other so-called true luxury acquisitions - notably, Bulgari, the people said.

LVMH's 2011 takeover of Bulgari valued the Italian jeweller at the equivalent of 28 times its trailing 12-months earnings before interest, taxes, depreciation and amortization, or Ebitda, a key measure of cash flow, according to a research note this week from Rogerio Fujimori, an analyst with Royal Bank of Canada.

Its US$120 per-share bid for Tiffany values the company at 14 times Ebitda, Mr Fujimori said. Tiffany probably doesn't deserve a multiple on par with Bulgari's because it will need reinvestment to reignite sales momentum, he said.

Eight analysts tracked by Bloomberg have target prices of US$130 or more for Tiffany. The shares, which traded at US$98.55 before the LVMH offer was reported, closed Friday at US$127.

The question now: How much more is LVMH willing to up its offer?

A tie-up between the two would see LVMH boost Tiffany's marketing spending and pivot the company toward the higher-end products, the people familiar with the matter said.

The board of LVMH also believes Tiffany, which has recently battled two activist hedge funds, would benefit from being part of a larger conglomerate.

Tiffany, the largest public jeweller globally by market capitalisation, started freshening up its management three years. It appointed Reed Krakoff to head its design operations in 2017, succeeding Francesca Amfitheatrof, who left to be artistic director at LVMH. Ms Amfitheatrof had started the brand's symbolic Tiffany T collection.

BLOOMBERG