The luxury deal of the century is back on track. Pending Tiffany shareholder approval, the French conglomerate LVMH will acquire Tiffany and Company for $15.8 billion, making this the biggest deal for the world’s biggest luxury company, a company which has grown to 75 brands through acquisitions alone.
A few short months ago, LMVH was looking for a way out of the original agreement, reached in November 2019 at $135 per share or $16.2 billion. A letter from France’s Foreign Affairs Minister gave it an off-ramp and LVMH tried to take it.
As in all on-again-off-again relationships, things got ugly. After LVMH claimed Tiffany didn’t meet its contractual obligation under the merger agreement, Tiffany promptly went to court to hold LVMH to its original bargain, saying “LVMH had unclean hands” as it used “any available means in an attempt to avoid closing the transaction.”
LVMH countersued with accusations that Tiffany mismanaged its business and cited “many [other] examples of mismanagement detailed in the filing.”
Tiffany fired back responding to “baseless and misleading counterclaims” by LVMH. To which LVMH called Tiffany’s allegations “meritless,” claiming Tiffany was engaged in “aggressive misdirection campaign tactics.” It further called out the “mediocrity” of Tiffany’s management.
On October 29, the contentious battle was settled and LVMH agreed to pay $131.5o per share for a total of $15.8 billion, a $420 million rounding-error for a company that made $63.5 billion last year.
Despite the mudslinging, LVMH CEO Bernard Arnault said in a statement, “We are as convinced as ever of the formidable potential of the Tiffany brand and believe that LVMH is the right home for Tiffany and its employees during this exciting chapter.”
At least for now, Tiffany has won the battle, but the real war is yet to come.
Can it live up to its promise, asserted by Tiffany CEO Alessandro Bogliolo in a statement: “We continue to believe in the power and value of the Tiffany brand and the compelling long-term strategic and financial benefits of this combination.”
That is the $15.8 billion question. Neither company responded to requests for comment.
All on board?
First, Tiffany must get its 14,000+ employees on board. For them, will LVMH’s repeated claims of mismanagement mean their own managers will go, and if they go, what happens to them?
A retail company is only as good as its employees and everybody from the board room to the stockroom to the sales floor answers to the customers. Any hint of dissatisfaction with the company and doubts about the business is communicated down the line to the customers.
On that score, Erica Carranza, Ph.D., vice president of consumer psychology at research firm Chadwick Martin Bailey, believes Tiffany has bought some time.
“Fortunately, we are in the middle of a pandemic where there are fewer customers in the store, but later, LVMH has to create a mutually beneficial and rewarding working situation that satisfies the employees of the acquired company,” she shares.
“They have to create a collective social identity where everybody’s feeling good about being part of this. If that’s not the case, it can trickle down to affect customers in the store,” she adds.
Building a “collective social identity” may be problematic because there is bound to be a cultural clash when the Paris bosses start to exert more influence on their American staff.
“A lot of people don’t know how aggressive LVMH is in their business strategies,” she says. “I think it could end badly for Tiffany, especially given all the drama that ensued during the whole process, especially if people feel Paris is being high-handed.”
Rather than making over iconic-American Tiffany into LVMH’s Parisian image, Carranza wonders if it might not be a better strategy to emphasize Tiffany’s American-ness.
“They could take a strategy of returning to a more classic Tiffany. We need to wait and see what the feelings are among people who care about Tiffany, both employees and customers: Do they want it the American way?” she shares.
Tiffany reduced to a “T”
However, it may be too late for Tiffany to return to its classic American roots and heritage, even if that is the direction LVMH decides to pursue for the brand, suggests Benedict Auld, founder of Lapidarius, a New York-based brand strategy consultancy.
He feels Tiffany has been following a LVMH playbook for years and the results haven’t been good. He points to the new $5,600 Tiffany T1 Wide Hinged Bangle bracelet in 18kt gold as an example.
“It looks like it was designed by an intern,” he says, as it shows no creativity or originality. “It’s an attempt to approximate the Louis Vuitton monogram. They’re running someone else’s playbook – Louis Vuitton – which is to use a monogram and just market it over and over again.”
The LVMH-ing of Tiffany, as Auld describes it, has been successful so far for Tiffany, as it has been for Louis Vuitton.
“On the new products front, the Tiffany T1 line, our newest gold and gold with diamonds jewelry collection, continued to do very well in the second quarter both in Mainland China and globally,” Tiffany CEO Bogliolo stated in the second quarter 2020 earnings report.
But Auld doubts it is a sustainable long-term strategy for Tiffany.
“Tiffany used to stand for something. Now it has been reduced to a ‘T’,” he shares. “The T1 product line is simply a fast, easy and largely speaking valueless, short-term approach. Tiffany is capable of making beautiful things, but this is simply garish and conspicuous. It is not beautiful. It is not culturally relevant.”
Customers will decide
CMB’s Carranza believes that customers may see the LVMH takeover of Tiffany as a turn toward more fashion. “Paris is synonymous with high fashion,” she says. “Because LVMH is a French company squarely within the luxury fashion space, it may turn out to be a good fit.”
But she told of a recent conversation with a young Louis Vuitton loyalist who expressed concern that Tiffany doesn’t live up to LVMH’s image. “This luxury customer was concerned that Tiffany would tarnish Louis Vuitton,” Carranza shares.
Tarnish it, Tiffany might, if it doesn’t demonstrate more creativity, originality or true luxury style than the T1 Collection shows.
“People talk about luxury as being about wanting stuff,” Auld says. “But luxury is where need begins. When people look at a luxury garment, bag or piece of jewelry, they absolutely have to have it with every fiber of their central nervous system. But who needs this bracelet?”
“If this is where LVMH is going to take Tiffany, in five years, will Tiffany even exist?” he concludes.