Tiffany Falls Further on Report LVMH Deal Is at Risk

The risk comes from the U.S. economic turmoil sparked by the coronavirus pandemic.
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Tiffany  (TIF) - Get Report shares fell a bit more in pre-market trading Wednesday after dropping sharply Tuesday as Women’s Wear Daily reported that the $16 billion deal for LVMH  (LVMUY)  to purchase the jeweler may collapse owing to U.S. economic turmoil.

Luxury goods retailer LVMH is worried that the economic crisis triggered by the coronavirus pandemic calls into question Tiffany’s ability to cover its debt covenants, knowledgeable sources told WWD.

Tiffany shares stood at $114.99 in pre-market trading, down 1.74%, after dropping 8.93% Tuesday and 12% over the past three months.

“I would imagine it is normal that LVMH internally discusses the proposed Tiffany acquisition -- given the size of the deal, the Covid-19 situation and the recent social unrest in the U.S.,” Luca Solca, an analyst at Sanford Bernstein told Bloomberg.

“Having said that, the Tiffany takeover would provide a unique strategic opportunity to LVMH, boosting its position in branded jewelry.”

Morningstar analyst Jelena Sokolova was unphased by the news.

“We are not changing our fair value estimate of $135 for Tiffany following” the WWD report, she wrote Wednesday.

“We continue to believe the transaction makes strategic sense for LVMH, based on our long-term view of Tiffany's fit rather than focus on the short-term issues Tiffany is facing, such as the coronavirus containment measures (which hurt the entire luxury industry) and the protests in the U.S.”

Still, she said, “the acquisition price LVMH agreed to pay implies an ambitious performance from Tiffany--revenue acceleration to high-single-digit growth (the last three-year average is 3.4%) and a margin improvement to over 25% (around 18% on average for the last three years).”