Tiffany and LVMH on Monday confirmed news reports over the weekend that the Parisian luxury conglomerate had approached the American jeweler with a $120 per share offer.
Tiffany's board is "carefully reviewing the proposal, with the assistance of independent financial and legal advisors," Goldman Sachs and Sullivan & Cromwell, according to a company press release. The retailer characterized the bid as an unsolicited offer.
The $14.5 billion all cash bid values Tiffany at a little more than 23 times its fiscal earnings per share, above the upper range of its longer-run average of 21 times and a 35% premium to its trailing 50-day average, according to a client note from William Blair analyst Dylan Carden.
Tiffany isn't exactly jumping at this proposal, and a Sunday report from the Financial Times indicated that the retailer is set to reject it on the grounds that it undervalues the company.
Despite making meaningful gains in sales and polishing its brand with store renovations and new designs, Tiffany has continued to struggle, however. Thanks to recent releases like Paper Flowers and Tiffany HardWear, and with greater transparency around the source of Tiffany diamonds, many younger consumers are returning to their grandparents' favorite blue box for engagement rings and other occasions. Yet executives blamed macro headwinds, including volatility in the stock market that rattled its wealthy clientele, for a 1% worldwide net sales decline to $1.3 billion and a 1% comp decline in the fourth quarter.
The company may be hard pressed to turn down its Parisian suitor. "Importantly, the potential takeout news comes at a time when fundamentals are somewhat challenged," Wells Fargo analysts led by Ike Boruchow said in a Monday client report, noting the jeweler's negative comps in the first half of the year and "macro headwinds from Hong Kong worsening" in the third quarter, and expressing "no surprise" at the development. "What's also important here is that investor sentiment is extremely negative today."
While the two companies are reportedly not conducting discussions in earnest, several analysts expect them to eventually, and Oppenheimer analysts are among those who think a marriage is imminent. "[W]e have long viewed [Tiffany] as a potential buyout candidate and look upon the current sector and macro backdrop for the brand as conducive to a transaction nearer-term," those analysts led by Brian Nagel wrote Monday. "In our opinion, recent news is likely reflecting the beginnings of a LVMH-TIF buyout negotiation, which should ultimately culminate in a deal."