LVMH Reviews Tiffany Prospects After Luxury Demand Craters

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(Bloomberg) -- LVMH's board has discussed its planned $16 billion purchase of Tiffany & Co. amid reports that the deal might need to be reworked as the Covid-19 pandemic and protests in U.S. cities cloud the jeweler's prospects.

The Louis Vuitton owner said directors met Tuesday to examine the agreement. LVMH ruled out buying Tiffany shares on the open market even though they trade at a 15% discount to the agreed price of $135 a share.

The French company said its board “focused its attention on the development of the pandemic and its potential impact on the results and perspectives of Tiffany & Co. with respect to the agreement that links the two groups.”

While analysts have said the jeweler complements LVMH's business, the deal may create headaches. Tiffany's reliance on the U.S. market makes it more vulnerable in the face of the Covid-related economic fallout and rising social unrest.

Since the deal -- the largest in the luxury-goods industry -- was reached in November, the virus outbreak has decimated demand. The political fallout from the death of George Floyd additionally risks weighing on consumer appetite, and Tiffany shares traded near a two-month low Thursday.

LVMH shares were little changed in Paris. Tiffany is prepared to litigate if LVMH proposes a price cut, CNBC's David Faber said, citing people familiar with the situation.

Investors have applauded the acquisition of Tiffany as a way for the luxury giant to better compete with Richemont-owned Cartier for leadership in the global jewelry market. However, Tiffany shares started dropping in March, when people familiar with the matter told Bloomberg that LVMH was considering buying shares on the open market and examining possible legal hurdles to the idea.

What Bloomberg Intelligence Says:
LVMH has reiterated its mid-April message of not dipping into the market to buy Tiffany shares, and we believe the deal will complete this year.
-- Deborah Aitken, senior analyst
LVMH Sticks to Tiffany Agreement, No Dipping in Downturn: React

LVMH responded at the time that it was currently bound by an agreement not to buy Tiffany stock on the open market. On Thursday it reiterated that it is not considering such a step.

Women's Wear Daily reported earlier this week that the planned deal is on shaky ground. Tiffany would be worth $60 to $75 a share if LVMH walks away, Credit Suisse analyst Michael Binetti wrote Wednesday.