Why Europe’s richest man wants to acquire Tiffany

October 30, 2019 16:16
LVMH saw its profit surge, driven by strong sales in Asia ex-Japan, especially China, which has already become its largest market. Photo: Reuters

The world’s largest luxury group LVMH has made a bid to buy jeweler Tiffany & Co. for US$14.5 billion in cash. Tiffany said it is reviewing the offer.

LVMH saw its interim sales revenue and net profit jump by 15 percent and 14 percent respectively, driven by strong sales in Asia ex-Japan, especially China, which has already become its largest market.

Strong results helped pump up the share price, which has surged 52 percent year to date.

LVMH is made up of 70 companies including top fashion brands like Christian Dior (CD), Louis Vuitton, wine makers Moet & Chandon, and luxury watch brands like TAG Heuer and Hublot.

Tiffany’s strength in luxury jewelry makes a good fit for LVMH’s business portfolio, where jewelry is still underrepresented. Bagging Tiffany would help the group secure a bigger share of Chinese customers’ wallets as their appetite for luxury goods continues to grow.

The luxury giant now has a market value of US$215 billion, with a debt ratio of only 28 percent. As such, it is in a strong financial position to make the acquisition.

LVMH’s owner and Europe’s richest man Bernard Arnault has a personal wealth of US$102 billion. He is ranked as the world’s third-richest man, behind Amazon’s founder Jeff Bezos and Microsoft’s founder Bill Gates, according to Forbes.

Arnault inherited a Paris infrastructure company from his father in 1979. But he quickly sold the company and moved into holiday home business in the early 1980s.

His wealth soared within a few years due to the economic recovery in Europe and the influx of American tourists into Europe.

In 1984, he made a big bet to acquire Christian Dior through a leveraged buyout and made a killing out of the luxury brand's recovery.

A few years later, he spent US$1.5 billion to acquire 24 percent of LVMH shares and gradually increased his stake to 43.5 percent in 1989. It has become Arnault's flagship company since then.

This article appeared in the Hong Kong Economic Journal on Oct 29

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist