Is LVMH ditching Tiffany because it has spotted a more attractive brand? It’s possible. But investors already bidding up alternative targets look to be premature.
Last week, the Parisian luxury group owned by Europe’s richest man, Bernard Arnault, and the U.S. jeweler each said they would sue the other over their collapsing $16 billion deal. Bidder LVMH Moët Hennessy Louis Vuitton doesn’t want to close the transaction. It is either playing hardball over price or wants to scrap the deal altogether since the pandemic makes its offer look far too generous. “It may cost them several hundred millions to settle out of court,” says Mark Clyman, partner at law firm Wilk Auslander. “But they will weigh that against closing the deal at the current price.”
Shares of several luxury names are up since the falling-out. Richemont , the Swiss jewelry and watchmaker that owns top brands Cartier and Van Cleef & Arpels, has gained 6% in a week. Moncler and Burberry , two apparel brands that are often the subject of takeover speculation, are up 11% and 5%, respectively.
The rally can be partly explained by data released Tuesday showing a recovery in retail spending in China. But stocks were rising before this positive sign. According to analysts covering the sector, investors are putting down bets that Mr. Arnault has a fresh deal in mind. A merger with Richemont in particular would help LVMH to expand its watches and jewelry division, which generated just 8% of group sales in 2019.
But it would be a strange time to launch a new offer. Valuations in the luxury sector are stubbornly high despite the pandemic. As a multiple of next year’s earnings, European luxury stocks trade at a 93% premium to the MSCI Europe index compared with 62% in the fourth quarter of last year, UBS analysis shows.