UPDATE: March 23, 2020: LVMH on Monday said that, contrary to some media reports (and in keeping with what most analysts expected last week), it would not buy shares through the stock market but instead adhere to its original plans to take over Tiffany & Co.
"Rumors circulated recently indicating that LVMH would consider buying Tiffany shares on the open market," the company said in a press release. "These rumors lead LVMH to recall that, in accordance with the agreement concluded with Tiffany in November 2019, LVMH is currently committed not to buy Tiffany shares."
LVMH and Tiffany still have reasons to stick by their agreement to merge, including Tiffany’s position as "a global brand with substantial growth opportunities with wide price points, broad appeal, and strong brand equity" and LVMH’s reputation as an acquirer of good faith, Cowen & Co. analysts said on Thursday.
But, given its global nature and the way it has undermined commerce, the COVID-19 pandemic, has introduced uncertainty that could nevertheless quash it, they also warned in an emailed note.
Even if the deal goes forward, it could be delayed because regulators in the U.S., Europe and/or China may not be working during this lay-low period when social isolation has emerged as a prime way to blunt the disease outbreak, according to an emailed note. The $16.2 billion deal had been expected to close in mid-2020.
Cowen analysts led by Oliver Chen do still believe that LVMH would benefit from having Tiffany in its stable.
Several analysts, when the plan was first announced, said they had viewed Tiffany as a company primed to get snapped up by a luxury house. LVMH was the one to do so, and analysts at the time noted advantages for both companies.
LVMH itself said that Tiffany would strengthen its position in the luxury jewelry market and foster an expansion further into the U.S. And the deal would provide Tiffany, with "further support, resources and momentum" in its key growth strategy, Tiffany CEO Alessandro Bogliolo said at the time of the announcement.
Those advantages still hold, according to Cowen's note. "We think it would be difficult for LVMH to gain market share in this high-barriers-to-entry category without acquiring a prestigious asset," the analysts said. And, despite how extraordinary they are, "current events would not have a materially disproportionate adverse effect on Tiffany relative to others in the industry," Cowen also said.
They also expressed confidence that Tiffany could mitigate store-based losses with increased e-commerce sales, though they do expect Tiffany to experience lower demand in "the near to medium term" due to uncertainties linked to the disease outbreak.
"However, many unknown factors exist and a deal may or may not happen given the global and uncertain nature of this event is unprecedented," Cowen analysts wrote.