The deal should add 5% to net income in 2020, LVMH said in an investor presentation. The company will finance the purchase through an $8.5 billion bridge loan, a $5.75 billion back-up commercial paper line and a 2.5 billion-euro revolving credit facility, to be refinanced on bond markets.
Global Opportunity
Tiffany remains highly dependent on the domestic market, with the U.S. accounting for about 41% of sales.
“Tiffany is an iconic, emblematic brand of America, with a great history,” Arnault said. “The weakness area is Europe -- and that, we know what to do and how to address. And there is a great potential in China.”
The jeweler’s struggles in the U.S. fueled an activist campaign by Jana Partners LLC and led to the replacement of Tiffany’s chief executive officer in 2017. Sales in the Americas dropped 4% in the first half, damping a burst of enthusiasm earlier this year that new CEO Alessandro Bogliolo’s tweaks were boosting Tiffany’s prospects. Even in Asia, revenue growth has been sluggish.
Bogliolo has been pruning Tiffany’s lower-end offering in an effort to boost profitability, though the strategy has yielded uneven results. The CEO has worked for LVMH before, heading Bulgari when the French company bought it eight years ago, and then shifting to run North American operations of beauty retailer Sephora the next year.
LVMH usually replaces management of brands it acquires with its own executives after a transition period. Alexandre Arnault, the founder’s 27-year-old son, runs Rimowa, the German luggage maker the French conglomerate bought in 2016.
The Tiffany deal is LVMH’s biggest ever and the first major acquisition since Bernard Arnault branched out by striking a deal for the Belmond hotel group last year. The French company’s 75 brands now span everything from fashion to suitcases to Cognac.
When asked what’s next on his list of acquisition targets, Arnault laughed and said, “One thing at a time.”
This article was provided by Bloomberg News.