Louis Vuitton Arouses Suspicion over $16bn Tiffany takeover

Louis Vuitton Arouses Suspicion over $16bn Tiffany takeover
June 5, 2020


The CEO of France based Luxury goods company, LVMH Moet Hennessy Louis Vuitton Societe Europeenne (OTC: LVMUY), Bernard Arnault, has stated that his company is looking at ways to recommence discussions on the previously agreed $16.20 billion takeover of the US jewelry chain Tiffany & Co (NYSE: TIF) as the US protests and the Covid-19 pandemic continues to harm the retail industry. Following the news, the stock of Tiffany lost 0.58% or $0.66 to close at $113.58. Likewise, Louis Vuitton closed Wednesday’s trading session at $88.32, down $0.78 or 0.88% from earlier close.

Paris-based LVMH, the most valuable luxury brand in the world, agreed to takeover Tiffany last November by paying $135 per share, but both parties are waiting for regulatory approvals to complete the deal. While announcing the acquisition, Arnault has stated that Tiffany would thrive for centuries to come” under the umbrella of LVMH.

Arnault is in discussion with his consultants to find ways to apply pressure on Tiffany to reduce the accepted acquisition price. In this regard, the CEO is also looking at whether the New York-based Tiffany has violated its commitments as per the takeover agreement.

Arnault issued a statement confirming rumors that his firm is rethinking about the takeover deal. “Considering the recent market rumors, LVMH confirms, on this occasion, that it is not considering buying Tiffany shares on the market.”

LVMH Board also discussed the Tiffany takeover issue this week as the management is worried about the Covid-19 crisis, the economic implications, and turmoil in the US affecting consumer demand for premium products.

LVMH is reportedly concerned about Tiffany’s ability to repay its debt obligations. Specifically, LVMH is worried about Tiffany’s capability to retire its debt. LVMH is yet to arrive at a strategy to realize a deal price reduction. Furthermore, it has not officially communicated to Tiffany about its concerns and request for renegotiating the deal price.

On its part, Tiffany has clarified that it does not see any legal grounds to begin another round of price bargaining. The company has pointed out that it meets all the financial terms mentioned in the takeover deal with LVMH and anticipates remaining fully compliant after announcing a quarterly dividend two weeks ago.

Even though Arnault is worried about overpaying for the purchase of Tiffany, he still believes that the deal has strategic benefits in the long-term. Tiffany will open new zones in the attractive US market and also increase its offerings in jewelry, which is the fastest-growing segment in the premium goods sector.

If Tiffany rejects LVMH’s request to restart price negotiations, the issue could reach the Delaware court. A virulent end to the acquisition deal would make it cumbersome for LVMH in attempting to acquire Tiffany again in the future.

The stock of LVMH and Tiffany is expected to be range-bound with slight bearish bias in the short-term.

The historical price chart provided below indicates that the stock of LVMH is facing resistance at 88. The next support is anticipated only near 73. Additionally, the stochastic RSI indicator is in the overbought zone. Therefore, we are expecting the stock to undergo a price correction in the days to come.

lv - technical analysis - 5th June 2020

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.


Andrew Wright

Prior to founding tradersasset.com in 2014, Andrew worked as a proprietary trader, then as a market maker. As a market maker, he traded options in over 100 stocks, he then began trading currency pairs in 2013. Andrew still actively trades both, and prides himself on educating and informing traders on the benefits of both Binary Options and Forex.

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