Tiffany and co financial analysis

A case Analysis of LVMH and Tiffany Merger

Author

Aaditya Singh – 1259555

Akhil Narayanan – 1263484

Anishek Bhutani – 1259142

Samaneh Seyedi – 1261254

Rokhsareh Shabani - 1257215

Table of Content

1. Introduction

1.1 About LVMH

1.2 About Tiffany

2. Strategic Analysis

2.1 SWOT analysis of LVMH

2.2 SWOT analysis of Tiffany

3. Mergers Terms and Conditions

4. Financial Analysis – LVMH

4.1 Financial data and Valuation Ratios

4.2 Capital Asset Pricing Model (CAPM)

4.3 Weighted Average Cost of Capital (WACC)

4.4 Dividend discount Model

4.5 Total Payout Model

5. Financial Analysis – Tiffany

5.1 Financial data and Valuation Ratios

5.2 Capital Asset Pricing Model (CAPM)

5.3 Weighted Average Cost of Capital (WACC)

5.4 Dividend Discount Model

5.5 Total Payout Model

5.6 Annual Present Value Model (APV)

6. Merger and Post Merger analysis

7.1 Synergy and Type

7.2 Operating Synergy

7.3 Financial Synergy

7. Conclusions

1. Introduction

1.1 LVMH

LVMH Moët Hennessy – Louis Vuitton SE, commonly known as LVMH, is a French MNC and corporation

which specializes in luxury apparel and other products. A family-run organization, LVMH aims to ensure

the long-term sustainability of each of its group companies, in accordance with their culture, heritage,

and expertise.

LVMH is home to 75 prestigious houses spread among six separate industries. Keeping true to the

tradition, each of their labels draws on a niche legacy while maintaining an unwavering emphasis on the

excellent nature of its goods.

Christian Dior SE, the parent firm of LVMH, has a controlling 40.9% shares and 59.01% of the voting

rights. Bernard Arnault, Chairman and CEO of both companies is also the majority shareholder of Dior. In

2017, Arnault purchased remaining shares of Christian Dior shares for a staggering $13.1 billion.

PRODUCTS OFFERING

The Louis Vuitton Moët Hennessey (LVMH) Group includes over 60 brands, split into five categories:

Fashion & Leather Goods, Perfumes & Cosmetics, Wines & Spirits, Watches & Jewellery, Selective

retailing and other activities.

1.1.a Fashion & leather goods

The luxury Fashion & Leather Goods sector includes a group of mainly French brands but also includes

Spanish, Italian, British, and American companies, each of them relying on quality, authenticity, and

originality of design to be successful. In order to keep pace with its enormous success around the world,

major high-visibility stores were opened in Hong Kong, Macao, Singapore, and Las Vegas.

Louis Vuitton is one of the most famous brands in this sector, which offers trunks, leather goods, ready-

to-wear, shoes, and accessories. Other brands owned by the LVMH Group include Fendi, Givenchy, Marc

Jacobs, Donna Karan, Kenzo, Céline, Loewe, Berluti, Emilio Pucci, Thomas Pink, Edun, Nowness, Loro

Piana and Nicholas Kirkwood.

For 2010, Louis Vuitton will implement a dynamic program of new store openings in new countries and

an expansion in the ones where the Group is already present, such as China.

1.1.b Perfumes & cosmetics

LVMH is one of the most flourishing organizations in the consistently developing business sector of

scents and beauty care products. Driven by the contemporary buyer's mission for magnificence and

prosperity, just as rising degrees of salary in rising nations and progressively different client bases with

varying needs, this market has various improvement openings.

Likewise, the Group's fragrances, make-up, and skincare part depend principally on an arrangement of

brands speaking to French organizations with a universal nearness: Christian Dior, Guerlain, Givenchy,

and Kenzo. By the by, the gathering additionally underpins the advancement of high-potential brands:

Benefit and Fresh, Acqua di Parma, Perfumes Loewe, and Make-Up Forever.

1.1.c Wines & spirits

The LVMH Wines and Spirits business bunch concentrates its development on the top of the line

showcase sections of the market. Despite the fact that LVMH is the world head in champagne, it

additionally creates still and shimmering wines from the world's most well known wine-developing

districts. The Group is likewise the world chief in cognac with Hennessy. It holds 24 distinct brands, for

example, Moët and Chandon, Dom Pérignon, Château Cheval Blanc, among others. The arrangement of

brands is served by an incredible universal dissemination organize. As referenced in the Perfumes and

Cosmetics segment, Europe has been losing power, permitting Asia to move to the highest point of

income conveying districts.

1.1.d Watches & jewelry

The latest of the LVMH business bunches hold an arrangement of extravagance brands with profoundly

corresponding business sector positions. This business bunch benefits specifically from TAG Heuer's

acknowledgment as the world head in high-exactness chronographs and from the strong Hublot brand.

The business bunch additionally relies on the watchmaking aptitude of Zenith, an individual from the

select gathering of Swiss Manufactures; the turn of events and change to top of the line results of Dior

timepieces; and the imagination and profitability of the adornments assortments from Chaumet, Fred,

and De Beers.

1.2 Tiffany

Seemingly the world's most famous gems brand, the historical backdrop of "Tiffany," goes back to 1837

when 25-year-old Charles Lewis Tiffany and his companion John B Young opened a little writing material

and extravagant products store in New York City with the assistance of a $1,000 commitment from

Charles' dad. (ANDERSON, 2016)

In 1841, Tiffany and Young took on another accomplice, J. L. Ellis, and the store became Tiffany, Young

and Ellis. By 1845 the store was fruitful enough to cease glue (ensemble gems) and start selling genuine

gems, just as the city's most finished line of writing material. Flatware was included 1847.

Notwithstanding these primary things, Tiffany's additionally sold watches and tickers, an assortment of

trimmings and bronzes, fragrances, arrangements for the skin and hair, supper sets, cuspidors, shoes,

belts, and various different sundries, including Chinese bric-a-brac and pony and canine whips.

In 1852, they acquainted authentic silver with the United States, a year in the wake of contracting John

C. Moore to deliver flatware only for the organization. In the long run, he purchased out his accomplices

in 1853, and the firm became "Tiffany and Co." (Tiffany and Co. - Company Profile, Information, Business

Description, History, Background Information on Tiffany and Co., n.d.)

Charles Lewis Tiffany hit the features in 1887 when he stunned the world by getting 33% of the French

Crown Jewels, acquiring himself the moniker "The King of Diamonds." After he died in 1902, leaving a

bequest evaluated at $35 million, Charles' child, Louis Comfort Tiffany, turned into the organization's

first official structure executive. (ANDERSON, 2016)

During the Great Depression (the 1930s), the Tiffany and Co. stock tumbled to a low of just $5 an offer

and in the long run had to close the two its London and Paris stores. (The Beginning of a Brand: Tiffany

and Co. | The Loupe, TrueFacet, 2016)

Tiffany stayed in the hands of the Tiffany family for a long time, until 1955. One of their investors, Harry

Maidman, a real estate agent, had bought up to 30% of the organization. He needed to offer his offers

to Bulova Watch Co., yet so as to forestall that, the Tiffany family offered 51% of the stock to the Hoving

Corp. In 1978, they were then offered to Avon Products Inc. until 1984 when they were offered to a

gathering of designers. In 1987, Tiffany opened up to the world. (Albertson, 2017)

By 1995 they had 18 retail locations in the U.S. what's more, 11 abroad. Presently, Tiffany and Co. works

289 stores all through the world.

2. Strategic Analysis

Vital investigation alludes to the way toward looking into an association, and it's workplace to plan a

technique. There are numerous different meanings of key investigation with an alternate point of view.

SWOT analysis for Both the companies has been carried out as a part of strategic analysis.

2.1 SWOT Analysis LVMH

STRENGTHS LVMH is strongly associated with quality. Endorsements by top celebrities. Good returns on capital investments. Strong brand portfolio Successful track record of innovating.

WEAKNESSES The profitability are below the industry

average. There are gaps in the product range sold

by the company. Investment in R&D is below the fastest

growing players in the industry. Focus on exclusivity makes them patent

or copyright most of their designs and they rely on centralized decision making which brings down the morale.

OPPORTUNITIES Stable cash flow offers opportunities for

expansion in neighbouring product categories.

Government’s green drive opens up the

potential for all state and federal government agencies to buy Louis Vuitton goods.

Expansion of Online Sales. Market innovations would dilute the

competitive edge of competition which will allow Louis Vuitton to increase its profitability relative to other competitors

THREATS The biggest threat that luxury good face

today is that of counterfeit products in the market.

Rising raw material cost can pose a

threat to the Louis Vuitton profitability. Increasing trend toward isolationism in

the American economy can lead to similar reaction from other government thus negatively impacting the international sales.

Changing consumer buying behavior

from online channel could be a threat to

2.2 SWOT Analysis for Tiffany

STRENGTHS Reliable suppliers – It has a strong base of

reliable supplier of raw material thus enabling the company to overcome any supply chain bottlenecks.

Successful track record of developing new products – product innovation.

Good Returns on Capital Expenditure – TIFFANY

& CO. is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.

Strong Free Cash Flow – TIFFANY & CO. has

strong free cash flows that provide resources in the hand of the company to expand into new projects.

WEAKNESSES There are gaps in the product range sold by the

company. This lack of choice can give a new competitor a foothold in the market.

The profitability ratio and Net Contribution %

of TIFFANY & CO. are below the industry average. Not very good at product demand forecasting

leading to higher rate of missed opportunities compare to its competitors.

Limited success outside core business – Even

though TIFFANY & CO. is one of the leading organizations in its industry it has faced challenges in moving to other product segments with its present culture.

OPPORTUNITIES New trends in the consumer behavior can open up new

market for the TIFFANY & CO. It provides a great opportunity for the organization to build new revenue streams and diversify into new product categories too.

New customers from online channel – Over the past

few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for TIFFANY & CO. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.

The new technology provides an opportunity to

TIFFANY & CO. to practices differentiated pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions.

THREATS Rising raw material can pose a threat to the

TIFFANY & CO. profitability. The demand of the highly profitable products

is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term.

Imitation of the counterfeit and low quality

product is also a threat to TIFFANY & CO.’s product especially in the emerging markets and low income markets.

Shortage of skilled workforce in certain global

market represents a threat to steady growth of profits for TIFFANY & CO. in those markets.

2.3 LVHM- Tiffany Merger

LVMH Moët Hennessy Louis Vuitton SE (“LVMH”), the world’s leading luxury products group, announced

that stockholders of Tiffany & Co. (NYSE: TIF) (“Tiffany”) had voted overwhelmingly to approve the

previously announced merger agreement relating to the proposed acquisition of Tiffany by LVMH at a

special meeting of Tiffany stockholders that was held today.

According to the agreement announced on November 25, 2019, LVMH will acquire Tiffany, the global

luxury jeweler, for $135 per share in cash, in a transaction with an equity value of approximately €14.7

billion or $16.2 billion.

Bernard Arnault, Chairman and Chief Executive Officer of LVMH, commented: “This approval is a

significant milestone as we move closer to completing our acquisition of Tiffany, an iconic company with

a rich heritage and unique positioning in the global luxury jewelry market. A globally recognized symbol of

love, Tiffany will be an outstanding addition to our unique portfolio of luxury brands. We look forward to

welcoming Tiffany into the LVMH family and helping the brand reach new heights as an LVMH Maison.”

The acquisition of Tiffany will strengthen LVMH’s position in jewelry and further increase its presence in

the United States. The addition of Tiffany will transform LVMH’s Watches & Jewelry division and

complement LVMH’s 75 distinguished Houses.

The transaction is still expected to close in the middle of 2020, subject to the receipt of regulatory

approvals and satisfaction or waiver of other customary closing conditions.

3. Financial Analysis LVHM

3.1 Financial data and Valuation Measures

By looking at various valuation proportions between comparable enterprises, speculators can settle on

more beneficial choices about the organization's future and have a superior comprehension of the

money related future, the dangers that they are taking to put resources into that organization.

Underneath we are talking about the significance of five proportions that shows the organization's

money and obligations the best.

P/E Ratio: A higher P/E extent shows that monetary experts are glad to finish on a higher offer cost

today because of improvement wants later. The high distinction exhibits that money related authorities

expect higher advancement from the association stood out from the general market. A high P/E doesn't

mean a stock is exaggerated.

Obligation/EBITDA proportion is the examination of monetary borrowings and profit before intrigue,

expenses, deterioration, and amortization. A higher Debt/EBITDA implies that the organization is

profoundly utilized and may have more troubles to take care of its obligations. Then again, by utilizing

the EV/EBIT proportion, we can understand how much money the organization has in hands. The higher

EV/EBIT, the less measure of obligation for that organization, and lower level of dangers for the

speculators.

EV/EBITDA is the undertaking estimation of an organization isolated by its profit before intrigue,

charges, deterioration, and amortization. The high/low proportion implies that the organization is

exaggerated/underestimated. Regularly, EV/EBITDA esteems beneath 10 are viewed as sound.

3.2 CAPM and WACC

LVMH Moet Hennessy Louis Vuitton SE earns better returns on investment than it takes to raise the

capital required for the expenditure.

A company that expects to continue to generate positive excess returns on new investments in the

future will see its value increase as growth increases.

3.3 Dividend Growth Model

3.4 Total Payout Model

Inference from Dividend growth and Total Payout Model (LVMH)

Both the dividend growth model and the total payout model are analytical strategies adopted by

financial experts and analysts to navigate among the available investment options. The specific purpose

of these two models is to estimate the fair-share value of stocks.

As noticed in the above calculations, the calculated share value of LVMH is noticeably lower than the

current share value of €350.00. The stocks for LVMH are currently 26.5%(TPM) - 65.8%(DGM)

overvalued.

Note* One limitation of the models is that they are highly dependent on the growth rate, and minute

changes in the same can lead to big alterations in the fair-share value.

The growth rate is assumed to be 3% to adjust to current situations.

4. Financial Analysis Tiffany

4.1 Financial Data and Valuation Measures

By comparing these ratios between LVMH and Tiffany, we can see that Tiffany is doing better, and

merging the two companies is a great opportunity for both sides. LVMH can have a better market share

in the US, and Tiffany can be improved in the millennial’s eyes and Asian and European markets, as

LVMH and Bulgari acquisition proved right.

4.2 CAPM and WACC

Tiffany earns a higher return on investment than required to raise the capital required for the

investment. A company like Tiffany that expects to generate positive surplus returns on new

investments continuously will see its value increase with the increasing growth.

4.3 Dividend Growth Model

4.4 Total Payout Model

Inference from Dividend growth and Total Payout Model (Tiffany)

The purpose of the dividend growth model and total payout model valuations is to determine if a stock

is overvalued or undervalued, assuming that the firm’s expected dividends grow at a value. As we can

see in the first model, dividends are growing at a rate of 6.85 % (Calculated from ROA), which is a bit

high to use for estimating the share value due to the COVID-19 situation. Considering dividends are

growing at a constant rate of 3%, Tiffany’s share value comes to $59.65. This calculated fair value of

Tiffany’s share price is 54% lower than its current $129.30 trading price. As in the second model, share

value is estimated at $87.88. Therefore, under these conditions, Tiffany’s share is overvalued.

4.5 Adjusted Net Present Value

Adjusted present value is a valuation method that segregates the impact of financing cash flows such as

debt tax shield on a project's net present value by discounting non-financing cash flows and financing

cash flow separately.

The above calculation shows Tiffany Net present value of $ 2.27 Billion. From the above model, it can be

inferred that Tiffany is overvalued.

5. Post-Merger Analysis - Synergies

5.1 Synergies and Types

A synergy is any effect that increases the value of a merged firm above the combined value of the two

separate firms. Synergies may arise in M&A transactions for several reasons, such as cost savings due to

operational efficiencies or revenue upside due to more productive use of assets. Below is a non-

exhaustive list of potential types of synergies that a company may face

Financial Synergy vs. Operating Synergy

The classification of Synergy as either Financial or Operating is like the classification of cash flow as

either financing or operating. Synergy can arise in both operating activities and financing activities. The

main difference between the two is:

1. Financial Synergy arises from the improved efficiency of financing activities and is primarily linked to a

reduction in the Cost of Capital.

2. Operational Synergy is achieved through the improvement of operating activities, such as reduced

costs from Economies of Scale.

5.2 Operation Synergies

The Merger between LVMH and Tiffany is a type of Functional Integration. This Merger will help LVMH

to establish itself as a leader in the high-end jewelry industry. Tiffany is one of the oldest American

companies with a very high Brand Value, which directly fits into the LVMH Portfolio.

The luxury jewelry business enjoyed a 7% increase in sales last year to about $20 billion, according to

Bain & Co. What’s more, LVMH executives believe that the industry has high barriers to entry, which

insulates Tiffany from upstarts, according to the Journal. This bodes well for the category in which

Tiffany competes. This will result in more Revenue for LVMH and Tiffany.

Tiffany has a weak presence in Europe, which can be overturned as a result of this acquisition as LVMH is

a European company and has a very strong hold in Europe. This merger will also help LVMH to

strengthen its hold in North American Markets.

This will also help in cost reduction and Improved reach. Hence This Merger creates Positive Operating

Synergies.

https://corporatefinanceinstitute.com/mergers-acquisitions-ma-synergies
https://corporatefinanceinstitute.com/resources/uncategorized/mergers-acquisitions-ma-process/
5.3 Financial Synergies

As shown in the above calculation, the merger creates a positive 1.2 Billion synergy.

LVMH Valuation Ratios Tiffany V aluation ratio

As seen from the valuation, tiffany is in great shape and has a fair debt to EBITDA ratio of 1.66 and ROA

of 12.46%. There is a good balance of debt to cash and debt to equity.

6. Conclusions

The acquisition will instantly make LVMH a major player in the hard luxury and ramp up competition for

Richemont brands like Cartier and Van Cleef & Arpels. Tiffany, with its very high brand value in the

luxury jewelry industry, is an ideal fit for the LVMH portfolio.

The merger represents a Functional integration that will create a positive operating in the form of

increased revenue, Improved reach in the European market for Tiffany, and the North American market

for LVMH.

Financial Analysis of Tiffaney shows financial stability in their operation, and Hence merger of two

companies will result in positive financial synergies

Reference

1. http://www.fundinguniverse.com/company-histories/LVMH-Moeuml;t-Hennessy-Louis-Vuitton- SA-Company-History.html

2. https://www.ft.com/cms/s/0/5f2242ac-4847-11e0-b323-00144feab49a.html

3. https://web.archive.org/web/20110607035949/http://www.lvmh.com/fonctionalite/pg_faq_his to.asp

4. https://web.archive.org/web/20131217193528/http://www.dior- finance.com/en/organigramme.asp

5. https://web.archive.org/web/20100211213251/http://money.cnn.com/galleries/2007/fortune/ 0711/gallery.power_25.fortune/25.html

6. http://fernfortuniversity.com/term-papers/swot/1433/1232-louis-vuitton.php

7. https://www.marketing91.com/swot-analysis-louis-vuitton/

8. Albertson, H., 2017. Tiffany & Co.: When And How Was It Founded? | Theeyeofjewelry.Com. [online] The Eye of Jewelry. Available at: [Accessed 12 April 2020].

9. ANDERSON, Å., 2016. The history of Tiffany. The Jewellery Editor, [online] Available at

[Accessed 10 April 2020].

10. Referenceforbusiness.com. n.d. Tiffany & Co. - Company Profile, Information, Business Description, History, Background Information On Tiffany & Co.. [online] Available at: [Accessed 11 April 2020].

11. https://www.gurufocus.com/term/wacc/TIF/WACC/Tiffany%2B%2526%2BCo

12. https://www.gurufocus.com/term/wacc/OTCPK:LVMUY/WACC-/LVMH-Moet-Hennessy-Louis-

Vuitton-SE

13. Tiffany & Co. Stockholders approve Acquisition by LVMH. https://www.lvmh.com/news-

documents/press-releases/tiffany-co-stockholders-approve-acquisition-by-lvmh

https://www.gurufocus.com/term/wacc/TIF/WACC/Tiffany%2B%2526%2BCo
https://www.gurufocus.com/term/wacc/OTCPK:LVMUY/WACC-/LVMH-Moet-Hennessy-Louis-Vuitton-SE
https://www.gurufocus.com/term/wacc/OTCPK:LVMUY/WACC-/LVMH-Moet-Hennessy-Louis-Vuitton-SE