Window of Opportunity in the Luxury Goods Market Closes

The high-end fashion window has closed.

Back in October, I dug into the bitter dispute between LVMH Moet Hennessy-Louis Vuitton (OTC: LVMUY) and Tiffany & Co. (NYSE: TIF).

Today, that dispute was finally resolved. And the window of opportunity is now slammed shut.

Backing up, it’s important to see how this agreed-upon merger boiled over into an international political incident and a reality-TV-style bout of name-calling… all to end in a 2.6% discount.

Back when Corona was just a beer brand, high-fashion dynamo LVMH agreed to buy U.S. jewelry giant Tiffany’s for $16.2 billion or $135 per share.

The two were seemingly a perfect match. Tiffany’s ability to market exclusivity in the jewelry business meshed so well with brands like Louis Vuitton and Christian Dior.

Both companies were quite profitable for many years. Tiffany’s in particular became a true moneymaker over the last few years.

But then, as you can guess, the pandemic broke all of that.

In the early months of this year, both companies hit a major roadblock as Asia shut down, where nearly half of LVMH’s sales came from.

It got worse when Europe and the U.S. were forced to lockdown too, where Tiffany’s reign big.

As you know, Asia recovered quicker. That left a major problem. LVMH was able to rebound. Tiffany’s wasn’t.

Mudslinging and Make Up

Deals of this size need plenty of government regulatory approval. That’s especially true for an international deal like this one. Unfortunately, the regulatory overseers were in a dispute of their own.

Paris and D.C.’s relationship had soured after a few years of trade wars and heated up over COVID responses.

That gave French Foreign Minister Jean-Yves Le Drian the ammo to close down, or at least delay this merger in favor of the domestic fashion company LVMH.

Tiffany’s went to court then. They suggested that LVMH was not honoring the agreement and would force a Delaware court to step in and close the deal for them.

The two companies came together and broke off negotiations in early fall.

And it was right around then that I first noticed a window of opportunity.

I wrote that there were three potential outcomes from this spat:

1. The deal goes through as agreed.
2. The deal gets trashed completely.
3. The deal gets altered.

In two of those three outcomes, LVMH would become a major winner. At least, investors would perceive it to be a major winner.

In the end, number 3 prevailed… one of the pro-LVMH scenarios.

Shortly after that article, the two agreed to a slightly lower number of $15.8 billion or $131.5 per share for the transaction.

After all of that, a year full of name-calling like Tiffany’s chairman saying “LVMH has unclean hands,” and a geopolitical showdown between governments… LVMH is now buying Tiffany’s at a 2.6% discount.

While an insane ending to a wild year in fashion, it does officially close the opportunity window.

What’s Next for This Unsavory Marriage?

This morning, Tiffany’s shareholders voted overwhelmingly to approve this renegotiated 2.6% haircut.

And so ends the year-end rally I predicted:

A solid two-month 30% gain is the most you can expect now. If you jumped in then, congrats. Because now is too late.

At $15.8 billion and a vaccine that would actually turn down luxury spending (in favor of travel), Tiffany’s is too rich.

What’s worse is that these two are now stuck together after all of that. And the agreement doesn’t include exactly how their managements will combine.

Board appointments, operation managers and sales directors are all going to be a second battle. This one has no winner.

And to put a cherry on top: Tiffany’s still hasn’t recovered. LVMH ends up a loser after all.

Once the deal finalizes over the next three months, investors will see that.

This is one case where it’s best to just take your money and run. The window is closed.

To your prosperity and health,

Joshua M. Belanger
Executive Publisher & Founder