Case Analysis: Tiffany & Co. and LVMH

Discussion Questions

What is the cost of capital for the acquisition?

How much is the acquisition premium?

What is the value of Tiffany & Co.?







FINC 495 Contemporary Issues in Finance Practice

Individual Case Study Instructions

Weeks 1-7

INSTRUCTIONS:

For the Weekly Individual Case Study, write a three to four-page (900 to 1,200 word) report and answer the

case study questions as indicated by expressing your position. Keep in mind that for the Weekly Individual

Case Study you will want to

1. Read and examine the case thoroughly, highlight relevant facts, and underline key problems.

2. Focus your analysis. Identify two to five key problems. ...

3. Uncover potential solutions and/or changes needed. Review course readings, discussions, outside

research, and your experience.

4. Select the best solution.

When answering Individual Case Study questions, you can showcase your ability to analyze a situation or

business dilemma, identify the important issues, and develop sound conclusions that flow from your analysis.

For this reason, it's important to use a logical framework for breaking down and analyzing the case. Therefore,

the following template for analyzing a case study is a useful guide.

Preliminary Work

 Critical reading of the case

o Make notes and highlight the numbers and ideas that could be quoted.

o Provide a general description of the situation and its history.

o Name all the problems you are going to discuss in your report.

o Specify the theory used for the analysis.

o Present the assumptions that emerged during the analysis, if any.

Analysis of the Case

 Executive Summary of the Case

o Describe the purpose of the current case study.

o Provide a summary of the company.

o Briefly introduce the problems and issues found in the case study

o Discuss the theory you will be using in the analysis.

o Present the key findings

 Focusing the Analysis

o Single out as many problems as you can, and briefly mark their underlying issues. Then make a

note of those responsible. In the report, you will use two to five of the problems, so you will have a

selection to choose from.

o Describe the detected problems in more detail.

o Indicate their link to, and effect on, the general situation.

o Explain why the problems emerged and persist.

Table 1.0 An overview of a Case Analysis

Identify the main research

problem

For example, the loss of brand identity is a problem faced by

Starbucks

Analyze the main underlying

causes of the existing problem

 When and why did Starbucks lose its brand identity?

 Were there certain changes in the company’s strategy

before the problem occurred?

Establish the cause-and-effect

relations between the various

factors

Starbucks’ brand image – possible sources of influence:

 The inner vision of the company

 Advertising

 The design of the stores

Formulate the best solutions to

address the problem

 Paying more attention to advertising campaigns

 Reconsidering the vision and mission statements

 Improving the design of stores

 Findings. This is where you present in more detail the specific problems you discovered in the case

study. In this section, you will:

o Present each problem you have singled out.

o Justify your inclusion of each problem by providing supporting evidence from the case study and by

discussing relevant theory and what you have learned from your course content.

o Divide the section (and following sections) into subsections, one for each of your selected

problems.

 Proposed Solutions

o List realistic and feasible solutions to the problems you outlined, in the order of importance.

o Specify your predicted results of such changes.

o Support your choice with reliable evidence (i.e., textbook readings, the experience of famous

companies, and other sources of external research).

 Recommendations. This is the section of your analysis where you make your recommendations based

on your research and conclusions. Here you will:

o Decide which solution best fits each of the issues you identified.

o Explain why you chose this solution and how it will effectively solve the problem.

o Be persuasive when you write this section so that you can drive your point home.

o Be sure to bring together theory and what you have learned throughout your course to support your

recommendations.

o Define the strategies required to fulfill your proposed solution.

o Indicate the responsible people and the realistic terms for its implementation.

o Recommend the issues for further analysis and supervision.

 Implementation. In this section, you will provide information on how to implement the solutions you

have recommended. You will:

o Provide an explanation of what must be done, who should take action, and when the solution

should be carried out.

o Where relevant, you should provide an estimate of the cost of implementing the solution, including

both the financial investment and the cost in terms of time.

 Conclusions. This is the section in which you summarize each issue or problem and present your

argument for each chosen solution. Here you will:

o Present a summary of each problem you have identified.

o Present plausible solutions for each of the problems, keeping in mind that each problem will likely

have more than one possible solution.

o Provide the pros and cons of each solution in a way that is practical.





Tiffany & Co. and LVMH: How Much Is Enough?

Case

Author: Carley Vaughn, Savannah Powers, Rachel Voketaitis, Kendal Hall, John Marsh & Woodrow D.

Richardson

Online Pub Date: January 03, 2022 | Original Pub. Date: 2022

Subject: Finance, Valuation, Mergers & Acquisitions

Level: | Type: Indirect case | Length: 2716

Copyright: © Carley Vaughn, Savannah Powers, Rachel Voketaitis, Kendal Hall, John Marsh, and

Woodrow D. Richardson 2022

Organization: Tiffany & Co. | Organization size: Large

Region: Northern America, Western Europe | State:

Industry: Retail trade, except of motor vehicles and motorcycles| Wholesale and retail trade; repair of

motor vehicles and motorcycles

Originally Published in:

Publisher: SAGE Publications: SAGE Business Cases Originals

DOI: https://dx(dot)doi(dot)org/10.4135/9781529794052 | Online ISBN: 9781529794052

© Carley Vaughn, Savannah Powers, Rachel Voketaitis, Kendal Hall, John Marsh, and Woodrow D.

Richardson 2022

This case was prepared for inclusion in SAGE Business Cases primarily as a basis for classroom discussion

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Abstract

This case chronicles the offer by LVMH Moët Hennessy Louis Vuitton’s offer to purchase Tiffany

& Co. in 2019. If Tiffany & Co. accepted the offer it would constitute the largest acquisition in the

global luxury goods market to date. Enough information is provided to allow an assessment of

the attractiveness of the purchase offer with respect to the valuation of Tiffany. The reader will

compare the terms of the offer with the intrinsic value of Tiffany and evaluate Tiffany’s decision

to accept or reject the offer.

Case

Learning Outcomes

After completing the case and its analysis, students should be able to:

• Calculate the cost of capital for an acquisition.

• Value a company and calculate the acquisition premium.

• Evaluate the fairness of the offer.

Introduction

In November 2019, Tiffany & Co., an independent luxury jewelry business, was at a crossroads. LVMH Moët

Hennessy Louis Vuitton (LVMH), owner of 75 luxury brands, had offered to purchase Tiffany. LVMH, the

world’s biggest luxury group (Jones, 2019), had a presence in all five major sectors of the luxury market: wine

and spirits, fashion and leather goods, perfume and cosmetics, watches and jewelry, and selective retailing.

Tiffany & Co. was attractive to the LVMH group because although it already had recognizable high-end brands

such as Christian Dior Fashion and Dom Perignon Champagne, LVMH’s prominence in jewelry was not as

strong (Wahba, 2019). Acquisition of Tiffany & Co. would give LVMH its first major U.S. non-fashion brand

and strengthen its watches and jewelry brands that included Bulgari and Tag Heuer. For 2019, LVMH reported

sales of over EUR 53 billion, with profits exceeding EUR 11 billion, and employed over 160,000 people in

70 countries (LVMH, 2019). The company emphasized the autonomy and responsiveness of each of the

businesses it owned (LVMH, n.d.)

Offer

On October 26, 2019, LVMH made a cash offer to buy Tiffany & Co., at USD 120 per share for a total value

of around USD 14.5 billion. LVMH’s offer for Tiffany & Co. was unsolicited. That is, Tiffany & Co. did not

announce that it was looking to sell; LVMH made the first offer to Tiffany’s shareholders without first consulting

the executives of Tiffany & Co. The offer was also made without competition. As the largest worldwide luxury

conglomerate, there were few, if any, that could compete with an offer from LVMH. To the surprise of many

investors, Tiffany rejected the offer as being too low because Tiffany had been trading in the USD 88–98

per share range. Nonetheless, LVMH persisted, leading to “discussions between the two sides centered

on establishing a fairer price for the historical value of the Tiffany brand and its reputation” (Dummett et

al., 2019). On October 28th, Tiffany’s share price increased from USD 98.55 to USD 127.65. LVMH came

back with a new offer of USD 130 per share or around USD 15.7 billion. Tiffany & Co. declined again, and

LVMH countered with an offer of USD 135 per share/USD 16.2 billion. Tiffany’s managers, however, seemed

nonplussed by the deal. They argued that despite the market premium, it undervalued Tiffany. If Tiffany’s

shareholders accepted the offer, it would be the biggest acquisition ever in the global luxury goods industry

(Deveau & Hammond, 2019a). Should Tiffany accept or remain independent as it had for 182 years?

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Background: Tiffany & Co.

Tiffany & Co. was founded in 1837 by Charles Lewis Tiffany and John B. Young when they opened a

stationery and fancy goods store in New York, introducing the famous shade of blue that was to symbolize its

reputation for quality and craftsmanship. In 1845, Tiffany published its first catalogue. In 1858, it became the

first U.S. company to use 925/1000 silver standards, which was later adopted as the U.S. sterling standard.

By 1870, Tiffany had become the United States’ premier silversmith and purveyor of jewelry and timepieces.

In 1987, the company went public on the New York Stock Exchange, trading under the ticker symbol TIF.

Tiffany offered a wide range of products from “$165 heart-shaped earrings, as well as top-end options like a

$165,000 diamond chain. The company received about 44% of its revenue from the Americas and 43% from

Asia. The rest came mostly from Europe” (Wahba, 2019). Tiffany operated 321 stores and employed over

14,000 staff in 2019.

The CEO, Alessandro Bogliolo, previously served as CEO of global apparel and accessories company Diesel

SpA from 2013 to 2017. He was Chief Operating Officer, North America, at Sephora USA Inc. from 2012 to

2013, and spent 16 years at Bulgari SpA from 1996 to 2012, serving in various management roles. About the

time Tiffany and LVMH were in negotiations, Bogliolo was interviewed on November 21, 2019 at The Year

Ahead: Luxury Summit in New York. When a Bloomberg journalist asked him if an acquisition, as a deal in

general, was part of Bogliolo’s plan for the future of Tiffany & Co., he responded as follows:

There are many luxury brands, but when you take a look at the top brands (mega brands) we talk about a

handful of brands. Some of them are extremely successful and are part of big groups; consider Vuitton and

Cartier. But you have other brands that are super powerful brands that are not part of big groups; consider

Chanel and Hermes. So, seriously, I don’t think that for this kind of level of brands that there is a magic

formula. It could be one way or another. What is crucial is that when you lead a brand like ours that has

182 years of history, you, at the end of the day, have to concentrate on the legacy that you receive and

the beautiful product and promises that you make to your customers. This is really the key to success.

Then the financial arrangements, as I said, can be successful one or the other. Customers don’t care about

shareholders. Customers care about your product, about your brand, about sustainability, about the beauty of

your products—this is what really makes success. (Bloomberg Live, 2019)

Tiffany & Co.’s Products

Tiffany & Co. offered jewelry pieces, specifically necklaces, pendants, bracelets, earrings, rings, and charms;

specialized in wedding and engagement rings; and also sold watches, home accessories, and perfumes. The

company prided itself on its prestige, eloquence, and brand loyalty. Its big marketing tool was the fact that its

products were one of a kind and personally specialized, which allowed customers to engrave and customize

their orders. In an attempt to expand the brand name, “Tiffany expanded into China, and branched into fashion

jewelry, hoping to attract a younger and more international clientele” (Dummett et al., 2019).

Tiffany & Co. Financials

In 2019, Tiffany & Co. generated USD 4.4 billion in sales (Mergent, 2020). Table 1 shows Tiffany & Co.’s

balance sheet, income statement, and statement of free cash. Bogliolo was hired as CEO in 2017 to turn

around the declining net income and slumping stock price under its previous CEO. While Tiffany’s net income

continued to slide in 2018, it rebounded under Bogliolo’s leadership for 2019 to USD 586.4 million.

Table 1. Consolidated Financial Statements

Tiffany & Co. Annual Income Statements (all figures in USD thousand)

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Fiscal Year Ending 1/31/2019 1/31/2018 1/31/2017 2/2/2016

Total revenue 4,442,100 4,169,800 4,001,800 4,104,900

Costs of goods sold 1,631,100 1,565,100 1,511,500 1,613,600

Gross profit 2,811,000 2,604,700 2,490,300 2,491,300

Indirect operating costs

Selling general and administration 1,791,700 1,603,300 1,562,200 1,524,298

Depreciation and amortization 229,000 206,900 206,900 206,902

Total indirect operating costs 2,020,700 1,810,200 1,769,100 1,731,200

Earnings before interest and taxes 790,300 794,500 721,200 760,100

Non-operating income/expenses

Interest income (expense) 39,700 42,000 46,000 49,000

Other non-operating income (7,100) 8,000 1,400 (1,200)

Total non-operating income 46,800 34,000 44,600 50,200

Earnings before tax 743,500 760,500 676,600 709,900

Taxation 157,100 390,400 230,500 246,000

Net income 586,400 370,100 446,100 463,900

Number of shares (basic) 122,900 124,500 125,100 128,600

Earnings per share (basic) 4.77 2.97 3.57 3.61

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Tiffany & Co. Annual Balance Sheets (all figures in USD thousand)

Fiscal Year Ending 1/31/2019 1/31/2018 1/31/2017 2/2/2016

Assets

Cash and equivalents 792,600 970,700 928,000 843,600

Short-term investments 62,700 320,500 57,800 43,000

Accounts receivable 245,400 231,200 226,800 206,400

Inventories 2,428,000 2,253,500 2,157,600 2,225,000

Prepaid expenses and other current assets 230,800 207,400 203,400 190,400

Total current assets 3,759,500 3,983,300 3,573,600 3,508,400

Gross property plant and equipment 2,892,200 2,718,100 2,455,700 2,354,400

Accumulated depreciation 1,865,500 1,727,600 1,523,900 1,418,600

Net property plant and equipment 1,026,700 990,500 931,800 935,800

Other assets 546,800 494,300 592,200 685,500

Total assets 5,333,000 5,468,100 5,097,600 5,129,700

Liabilities

Accounts payable 217,100 201,500 108,600 127,800

Accrued expenses 120,900 134,600 123,000 99,800

Current debt 226,800 241,200 457,400 527,400

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Other current liabilities 153,300 147,500 (56,200) (25,100)

Total current liabilities 718,100 724,800 632,800 729,900

LT debt and leases 883,400 882,900 878,400 798,100

Pensions and OPEB 312,400 287,400 318,600 428,100

Deferred LT liabilities 31,100 40,500 45,900 55,100

Other liabilities 988,700 1,023,900 841,200 937,000

Total liabilities 2,215,600 2,234,700 2,084,100 2,218,300

Shareholders’ equity

Common share capital 1,200 1,200 1,200 1,300

Additional paid-in capital 1,275,400 1,256,000 1,190,200 1,175,700

Retained earnings 2,045,600 2,114,200 2,078,300 2,012,500

Other equity (204,800) (138,000) (256,200) (278,100)

Total equity 3,117,400 3,233,400 3,013,500 2,911,400

Total liabilities and equity 5,333,000 5,468,100 5,097,600 5,129,700

Source: Mergent Online, 2020

LVMH’s Plans for Tiffany

As Peter Cohan reported for Forbes,

LVMH plans to boost Tiffany’s marketing budget, launch new products, spiff up its retail stores, and make the

brand more appealing to millennials. LVMH views Tiffany’s relatively low priced products as a great way to

attract younger shoppers—who presumably could become wealthier as they age and ultimately pay up for

LVMH’s pricier brands. (Cohan, 2019)

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1.

2.

3.

Also Tiffany could benefit from the merger because,

Tiffany has been working to bounce back under Chief Executive Officer Alessandro Bogliolo, who decided

to cut back on entry-priced gifting options and revamp marketing to target younger shoppers. At LVMH, the

brand would join a stable that already includes Christian Dior fashion, Bulgari jewelry and Dom Perignon

Champagne. (Deveau & Hammond, 2019b)

Another reason the acquisition was supported was due to the global jewelry industry’s projected solid growth

and profit potential. According to LVMH executives, it was believed that the industry had high barriers to entry

which “insulates Tiffany from upstarts, which bodes well for the category in which Tiffany competes” (Cohan,

2019). Additionally, LVMH’s scale offered Tiffany access to capital at much cheaper prices. In one typical

example, LVMH raised USD 1.8 billion in a bond offering that would mature in seven years with a price of

USD 99.16 for every USD 100 face value and an annual coupon of 0.125% (Markets Insider, 2020). LVMH

has an average tax rate of 26%. Although Tiffany’s shareholders would be paid in cash from the deal, the new

combined company would finance the deal through additional bonds like these.

On the other hand, Tiffany & Co. had been successful as an independent operation for over 180 years due

to a variety of reasons. Ultimately, the company had developed characteristics that were very difficult for

competitors to replicate, which, in turn, demonstrated the company’s competitive advantages, including “its

diamond polishing facilities, long term relationships with diamond mines, strength in engagement jewelry,

and long term growth potential in China” (Deveau & Hammond, 2019b). In a SWOT analysis of Tiffany

completed by MarketLine, the company’s strengths greatly outweighed its weaknesses. The September 2019

assessment determined Tiffany’s strengths to be multiple channel sales, revenue growth, and manufacturing

and design facilities. There was a weakness in operating performance in relation to a decline in revenue from

the Japan business (MarketLine, 2018) and a cost of capital of 8.6%—high for the industry (Jucca, 2019).

Table 2 lists Tiffany’s earnings per share from 2016 to 2019.

Table 2. Tiffany & Co.’s Earnings Per Share

1/31/19 1/31/18 1/31/17 1/31/16

Shares outstanding 121,500,000 124,500,000 124,500,000 126,800,000

EPS—basic 4.77 2.97 3.57 3.61

EPS—diluted 4.75 2.96 3.55 3.59

Source: Adapted from Mergent Online, 2020

Conclusion

Alessandro Bogliolo and the shareholders were facing a big decision to make for Tiffany & Co. and needed to

make it quickly. Tiffany & Co. was already a leader in the industry, so the merger would only be beneficial to

the company if it increased value and growth. A better offer was on the table. Should Tiffany & Co. accept?

Discussion Questions

What is the cost of capital for the acquisition?

How much is the acquisition premium?

What is the value of Tiffany & Co.?

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Page 8 of 9 Tiffany & Co. and LVMH: How Much Is Enough?

4. Is the deal good for Tiffany & Co.?

Further Reading

Tiffany & Co. (2019, November 25). LVMH reaches agreement with Tiffany & Co. [Press Release].

https://investor(dot)tiffany(dot)com/static-files/9a8842f4-4f7b-438f-a6c6-4d768c2d6546

References

Bloomberg Live. (2019, November 21). Tiffany & Co. CEO Bogliolo on the future of luxury [Video].

https://www(dot)youtube(dot)com/watch?v=IaHvqSmnaJc

Cohan, P. (2019, November 25). Four reasons $16.2 billion Tiffany acquisition makes LVMH stock a buy.

Forbes. https://www(dot)forbes(dot)com/sites/petercohan/2019/11/25/four-reasons-162b-tiffany-acquisition-makeslvmh-

stock-a-buy/#460e4d8c6659

Deveau, S. , & Hammond, E. (2019a, November 20). LVMH and Tiffany enter talks after LVMH boosts offer.

Bloomberg. https://www(dot)bloomberg(dot)com/news/articles/2019-11-20/lvmh-and-tiffany-are-said-to-enter-talksafter-

lvmh-boosts-offer

Deveau, S. , & Hammond, E. (2019b, November 21). LVMH and Tiffany are talking merger after Louis Vuitton

made its offer $1.2 billion more luxurious. Fortune. https://fortune(dot)com/2019/11/21/lvmh-merger-tiffany-newoffer-

talks/

Dummett, B. , Kapner, S. , & Dalton, M. (2019, November 25). LVMH bets it can restore Tiffany’s shine

with $16 billion deal. The Wall Street Journal. https://www(dot)wsj(dot)com/articles/lvmh-nears-deal-to-acquire-tiffanyfor-

16-3-billion-11574611959#:˜:text=in%20a%20more%20than%20%2416,had%20reached%20a%20preliminary%20agreement

Jones, S. (2019, October 29). What would an LVMH Tiffany acquisition mean for the luxury business?

Vendôme. https://www(dot)vendomegp(dot)com/news/2019/10/29/what-would-an-lvmh-tiffany-acquisition-mean-forthe-

luxury-business

Jucca, L. (2019, October 27). Breakingviews—Tiffany splurge is affordable indulgence for LVMH. Reuters.

https://www(dot)reuters(dot)com/article/us-tiffany-m-a-lvmh-breakingviews/breakingviews-tiffany-splurge-isaffordable-

indulgence-for-lvmh-idUSKBN1X7073

LVMH. (2019). Annual Report: Passionate About Creativity. https://r(dot)lvmh-static(dot)com/uploads/2020/04/

lvmh_rapport-annuel-2019_gb.pdf

LVMH. (n.d.). LVMH company—an operational and functional model—LVMH. https://www(dot)lvmh(dot)com/group/

about-lvmh/the-lvmh-model/

Marketline. (2018, September 4). Tiffany & Co. SWOT Analysis. 1–7. https://search-ebscohostcom.

umw.idm.oclc.org/login.aspx?direct=true&db=bth&AN=132423177&site=ehost-live

Markets Insider. (2020, August 5). LVMH 20/28MTN bond. https://markets(dot)businessinsider(dot)com/bonds/

lvmh_mo%c3%abt_henn_l_vuitton_seeo-medium-term_notes_2020-28-bond-2028-fr0013482833

Mergent Online. (2020). Tiffany’s financials. RSTE Russell. https://www-mergentonlinecom.

umw.idm.oclc.org/companyfinancials.php?compnumber=8250

Wahba, P. (2019). Tiffany agrees to tie the knot after LVMH raises its bid to $16.2 billion. Fortune.com,

N.PAG. https://search-ebscohost-com(dot)umw(dot)idm(dot)oclc(dot)org/

login.aspx?direct=true&db=bth&AN=139871049&site=ehost-live

https://dx(dot)doi(dot)org/10.4135/9781529794052

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