The first time I bought Tiffany & Co. Stocks $TIF was in 2016. It became the largest position in my portfolio. I sold all the shares last year but now, I am buying Tiffany's again.
Tiffany & Co. is has a very rich history. The company has been making jewelries for nearly 200 years. They made jewelries for royal families and for celebrities and even designed the seal of the United States and the Super Bowl trophy. But the Tiffany's failed to appeal to millennials with the rise of more accessible jewelry companies such as Pandora $pndora.co and online stores. That's why the stock price was underperforming around 5 years ago but then they got a new CEO and management and I started buying shares of this company.
The business of Tiffany's was affected by the Trump's presidency. Their flagship store in New York City today accounts for 10% of the sales. This was much bigger in the past and the store is next to the Trump Tower. The higher security lowered sales in the flagship store. A stronger US Dollar was also bad for Tiffany's as they make all their products in the US and are a net exporter. Thirdly, their second largest market is China and there was the trade war. The stock was getting expensive and I took profits since I was expecting a recession and luxury stocks don't do good during recessions. It was a good move since the stock crashed a few months later.
The real value of Tiffany & Co. is in its intangible assets. The company has a very rich history and valuable brand name. They have a trademark on the Tiffany Blue color and anybody can recognize the famous Tiffany Box. The real intangible assets are rarely shown on the balance sheet and this is something that is very important when valuing companies today. For example, most of the assets of Facebook $FB or Google $GOOG are in the form of intangibles.
Why I'm buying Tiffany's? The company will be acquired by LVMH $mc.pa in 100% cash transaction for $16.2 billion or $135/share. There's the possibility of making money by arbitrage. The deal is, however, uncertain as some board members of LVMH are unhappy about the pandemic and the unrest in the US. We need to see who controls LVMH. 47% of the company is owned by Bernard Arnault, the richest man in Europe who was also recently the second richest man in the world. He has 63% of voting rights of LVMH. I don't think that Bernard Arnault became the second richest man in the world by thinking short-term. Maybe there are some board members who are unhappy about the deal but as far as Bernard Arnault is concerned, I don't think we need to worry. The probability of the deal not going through is very small.
The exposure of LVMH to jewelry is not that big and buying Tiffany's will be good for both companies. Of course, there is always the risk of the deal not going through but this is a risk I'm willing to take. No investment is without risk. It is getting harder and harder to find good deals in the stock market, we have one, it is better to take it.
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