Tiffany's Slumping Shares May Rekindle Takeover Talk

NEW YORK, United States — Tiffany & Co.'s plunging shares are bringing a takeover of the $11 billion luxury-jewelry chain back into the realm of possibilities.

The 17 percent drop this week has reduced Tiffany’s share price to about 20 times trailing 12-month earnings, the New York-based company’s cheapest valuation in about two years. In the past, it’s been labeled an acquisition candidate for industry consolidator LVMH Moet Hennessy Louis Vuitton SA, other luxury-goods makers and even private-equity firms -- price always being the one, big caveat.

At about $86 a share Tiffany still isn’t dirt cheap and management is unlikely to want to sell, but if the stock were to stay down for a longer period of time that could change things, according to Morningstar Inc.’s Paul Swinand.

“At $110, it wasn’t fathomable,” Swinand, a Chicago-based analyst, said in a phone interview. “It’s at least fathomable at this price.”

Tiffany, known for its engagement rings and jewelry gifts, had a surprisingly sluggish holiday season in the U.S. It had been counting on the Americas to help offset weaker results overseas, particularly in Japan, and the negative impact of currency fluctuations.

Stock ‘Hiccup’

The stock plunged 14 percent Jan. 12, its biggest drop in more than a decade, and has continued to fall. That’s made Tiffany the fourth-worst performer in the Standard & Poor’s 500 Index so far this year.

“The company and its stock are no strangers to hiccups, and that is all this is,” said Howard Ward, chief investment officer of growth equities for Rye, New York-based Gamco Investors Inc., which owns Tiffany shares among the $47 billion of assets it oversees.

Even though buyout firms seem to be taking an interest in retailers again, another maker of luxury goods is a more likely suitor for Tiffany. Financial buyers tend to target poorly managed businesses that they can turn around, which isn’t the case with Tiffany, according to Ward.

“I suspect Tiffany is worth more to some of the European luxury conglomerates than it is to private equity,” he said.

The company has long been considered a potential target for Paris-based LVMH, which owns brands such as Bulgari jewelry, Dom Perignon champagne and Sephora make-up stores and is controlled by Bernard Arnault, France's richest man. After relinquishing most of his holding in Hermes International last year, Arnault is expected to continue seeking acquisitions.

“LVMH is marginally better positioned for a large takeover,” said Luca Solca, London-based head of luxury-goods research for Exane BNP Paribas. “Bulgari is now really starting to get traction and is not a problem anymore. And LVMH is no longer involved with Hermes.”

Still Pricey

A purchase of Tiffany at these levels would still be expensive, and it would require a typical takeover premium of about 30 percent, he said. That implies a bid of about $111 a share, valuing Tiffany at $15 billion including net debt. That would exceed the enterprise values of Burberry Group Plc, Coach Inc. and Ralph Lauren Corp.

So, while Tiffany has gotten cheaper, an acquisition is still “not a slam dunk,” Solca said.

By Tara Lachapelle. Editors: Beth Williams, Mohammed Hadi.