LVMH's Sparkling Acquisition: Experts On Why Buying Tiffany Is Wise

U.S.-based luxury jewelry retailer Tiffany & Co. TIF has agreed to sell itself to LVMH Moet Hennessy Louis Vuitton LVMUY in a deal that was applauded by two experts.

Tiffany Addresses LVMH's 'Weak Spot'

LVMH boasts a lot of strength in ultra-high end categories like clothing and champagne, and its acquisition of Tiffany addresses a "weak spot," Bloomberg's Aaron Kirchfeld said on "Bloomberg Surveillance."

The acquisition of Tiffany gives LVMH immediate access to the U.S. jewelry market and new exposure to China, he said. 

LVMH has plans to equate Tiffany with its Bulgari brand, which can be accomplished through moving Tiffany "upmarket," Kirchfeld said: Tiffany will transform to become even more exclusive through higher prices. The company has expertise in cutting costs, which will help support margins even more, he said. 

"I think they want to go to the customer who is going to buy a nice Louis Vuitton purse and as they are walking out they see a sparkling diamond on the right and they say 'hey, why don't I add that," Kirchfeld said. 

Tiffany shareholders appear to be happy with the deal after LVMH lifted its buyout offer from $120 to $135 per share. LVMH offered a "nice premium without overpaying" after it was made evident a competing bidder hasn't entered the race, according to Bloomberg's Kirchfeld. 

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Elevating Tiffany's Brand

LVMH Chairman and CEO Bernard Arnault has been actively searching for new acquisition targets over the past two or three years to bolster the business, Arash Massoudi, corporate finance and deals editor at the Financial Times, said in a Monday CNBC interview.

Tiffany offers exposure to a sector where it lags rivals, he said. LVMH's hard luxury business — watches and jewelry — isn't as strong as that of rival Richemont, which owns the Cartier brand, Massoudi said. 

LVMH is "really good" at elevating brands it acquires, and its track record could be used to boost Tiffany, which lost some of its shine lately, he said. 

As part of the LVMH family of brands, the company will focus on making and selling items that are "as expensive as possible," he said. At the same time, the lower-priced items will continue selling, but the high end will be the main focus, the Financial Times editor said. 

Price Action

LVMH over-the-counter shares were trading 2.27% higher at $89.37 at the time of publication, while Tiffany shares were up 6.1% at $133.21.