Richemont – Thoughts on Tiffany’s strained engagement with LVMH

US-listed jeweller and specialist retailer, Tiffany’s and luxury conglomerate, LVMH are counter-suing each other after LVMH pulled out of its pre-COVID acquisition of Tiffany’s.

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US-listed jeweller and specialist retailer, Tiffany’s and luxury conglomerate, LVMH are counter-suing each other after LVMH pulled out of its pre-COVID acquisition of Tiffany’s. Amid recent industry rumours that LVMH may be rather considering a bid for Richemont instead, I allowed myself to fantasise about the potential benefits for Richemont of making a bid for the jilted bride, Tiffany’s.

I believe that it would be a positive move if Richemont acquired Tiffany, for the following key reasons.

1) Branded jewellery penetration into the largely generic jewellery market is providing the category with a growth tailwind, certainly in excess of the growth in the high-end watch category. Thus, this move would potentially elevate Richemont’s growth trajectory.

2) Richemont is already a key player in the branded jewellery market with its Van Cleef & Arpels and Cartier brands, and with Tiffany’s in its stable, it would effectively win the trifecta in branded jewellery given Tiffany’s dominant status as a luxury jewellery brand, global reach, and pricing power. Jewellery currently accounts for ALL of Richemont’s profit

3) The acquisition would keep Richemont’s focus on hard luxury intact but given the reach of Tiffany’s product (and price) range from high-end to accessible luxury, would bring some exposure to the faster-growing ‘accessible luxury’ segment to Richemont.

4) The much-anticipated management changes at Richemont in 2017, in my opinion, has fallen flat. The common criticism by many analysts since then, has been the lack of a clear vision by the management team and even more opaque communication on strategy. This may be an indication that Johan Rupert, in fact, remains firmly in control of Richemont and the management team is weak in making any form of stand to shift the company’s strategy into the new era in any meaningful way…arguably suggesting their own lack of vision.

5) A bold move such as Tiffany’s acquisition would certainly be a definitive management action and potentially mark a change in Richemont’s history and earnings trajectory. At the least, it would put the group’s cash resources to better use, thus eliminating the cash drag in the business.

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Alec Abraham

Senior Equity Analyst, Sasfin Wealth

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