Breakingviews: Tiffany shine contradicts LVMH deal tantrum

Tiffany is sparkling in LVMH’s crown. The famous U.S. jeweller, which tycoon Bernard Arnault added to his collection following a bitter $16 billion takeover last year, has bounced back from the pandemic and already appears to be more profitable than in 2019. The performance contradicts the French luxury giant’s attempt to wriggle out of the deal last year. Future LVMH targets will take notice.

After declining to complete its biggest-ever purchase in September, the owner of Dior and Givenchy argued in a Delaware court that the pandemic had “devastated” Tiffany’s business, said that management had mishandled the crisis, and accused the jeweller’s board of having made “a series of horrible decisions”, including paying dividends while sales and earnings were plummeting. The dispute ended in October when Tiffany accepted a $430 million reduction in LVMH’s original offer.

The 352 billion euro French giant has clearly put the Covid-19 emergency behind it. Helped by the continued success of its flagship Louis Vuitton brand, sales jumped 53% on a comparable basis to 28.7 billion euros in the first half of the year. That’s 11% better than in 2019, before the pandemic. Sales in LVMH’s jewellery and watches division, which includes Italian jeweller Bulgari, reached 4 billion euros.

Tiffany also appears to be off to a good start. The maker of iconic diamond rings made a profit from recurrent operations of 339 million euros in the first half of the year. That’s about 12% more than it earned in the six months to July 2019, using the prevailing exchange rate at the time. First-half revenue of 1.9 billion euros was slightly higher than two years ago, while its operating margin of around 18% is above pre-pandemic levels. Analysts had expressed concern that Tiffany’s inclusion would be a drag on the jewellery and watches division’s profitability. In fact, the unit’s operating profit was nearly 20%, well above the 17% it reported in 2019.

Tiffany’s shine makes Arnault’s deal tantrum look all the more contrived. It’s also a reminder of his financial ruthlessness when pursuing targets. Other independent luxury brands that come into the French tycoon’s sights will be all the more determined to make sure he pays up.

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