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
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Page 2 of 9 Tiffany & Co. and LVMH: How Much Is Enough?
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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Marsh, and Woodrow D. Richardson 2022
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