A luxury goods company like LVMH is one that keeps growing with higher profit margins, as a result of increased consumer spendings. LVMH is a French multinational luxury goods company that has over 70 brands in the Fashion and Leather Goods, Perfumes and Cosmetics, and Watches and Jewellery industries.
One of the strategies that the luxury goods group has implemented over the years is growing through acquisitions. By acquiring various brands and numerous stores in different countries, they have steadily expanded their global reach. The LVMH brand made a decision last year to acquire American Jewellery brand, Tiffany and Co., however, the deal fell through recently.
Why was this decision taken, and what does this mean for both brands?
About Tiffany And Co.
Tiffany and Co. is an American luxury jewellery and speciality retailer that deals in jewellery, sterling silver, watches, personal accessories and leather goods for customers. The brand has been in existence for over 180 years, with global stores in different countries.
Tiffany and Co. is known for its luxury goods, particularly its diamond and sterling silver jewellery, and has over the years marketed itself as an arbiter of taste and style.
About The Acquisition Deal
In November 2019, LVMH announced their decision to purchase Tiffany and Co. for 16.2 billion USD to be able to compete with top luxury goods companies such as Kering and Richmond who have numerous jewellery brands under them.
Apart from that, this deal would have allowed LVMH to position themselves in North America and build on their foundation in the jewellery market.
For the Tiffany and Co. brand, this deal would have enabled them to freshen their products and would have helped them grow overseas as well since they have been criticized consistently for lacking innovation.
However, the surety of all these currently dwindles.
Why then is LVMH pulling out?
Since the deal was announced, both companies had been shifting the deadlines for the closing deals for various reasons. The most recent extension was requested by Tiffany to Dec 31, and this is one of the reasons cited by the LVMH group not to complete the deal again.
The major reason for the pulling out, however, is the fact that the LVMH Group had been requested by the French government to delay the takeover due to tariff threats from the United States of America. According to the board, based on a letter gotten from the French Foreign Affairs Minister asking them to delay the acquisition until January 6, 2021, the United States government is threatening to impose tariffs on French goods.
This did not sit well with the board of Tiffany and Co., however, as they feel the LVMH group is trying to use any available means in an attempt to avoid closing the transaction on agreed terms. And as the chairman, Roger Farah, shared,
“We regret having to take this action but LVMH has left us no choice but to commence litigation to protect our company and our shareholders.”
This deal would have increased Tiffany and Co.’s chances of growing outside America, increasing their value, improving their retail network as well as expanding their product offerings to both countries. It would have also provided the LVMH group with a more modern and accessible jewellery brand compared to the ones in their portfolio.