By Sarah White and Dominique Vidalon
PARIS (Reuters) - LVMH has offered to buy Tiffany & Co (NYSE:TIF), known for its engagement rings and ties to Hollywood glamor, as the owner of Louis Vuitton and Bulgari seeks to expand in jewelry, one of the fastest-growing parts of the luxury goods market.
In a deal that would beef up its smallest business and give it a slice of the lucrative U.S. market, LVMH on Monday said it had approached Tiffany about an unsolicited non-binding offer, but gave no details.
Confirming the move, Tiffany said the offer was worth $120 per share, which would value Tiffany at nearly $14.5 billion and represents a 22% premium over the stock's closing price on Friday.
Investors piled into the New York-listed stock on the news, sending Tiffany shares up as much as 31% to one-year highs around $130 and putting them on track for their best daily performance since the 182-year-old company's market listing in 1987.
Several analysts said Tiffany might reject the offer to seek a higher price, potentially kicking off a battle for control of the company known for its signature robin's egg blue packaging.
LVMH said there was no guarantee that preliminary discussions would result in an agreement.
Analysts at Credit Suisse (SIX:CSGN) and Cowen said Tiffany could be worth as much as $140-$160 per share and UBS analysts estimate cash-rich LVMH has an M&A treasure chest of some 40 billion euros ($44.4 billion).
Tiffany stock is valued at a big discount to the U.S and European sector because it is struggling with falling demand from Chinese tourists and competition from lower-priced rivals such as Denmark's Pandora A/S and Signet Jewelers.
After recent lacklustre share performance - the stock has lost almost a third of its value since hitting all-time highs in July last year - shareholders would likely welcome a takeover, said William Blair analyst Dylan Carden.
"Three years into its turnaround strategy, Tiffany is an arguably more attractive asset than it has been historically," he said.
(Graphic: Tiffany at a discount to peers, https://fingfx.thomsonreuters.com/gfx/mkt/12/7879/7810/lvmh.png)
GLOBAL BRAND
Tiffany, founded in New York in 1837 and made famous worldwide by the 1961 movie "Breakfast at Tiffany's" starring Audrey Hepburn, said it was still reviewing the proposal and is "not in discussions" with LVMH about a deal.
If a deal emerges, it would be the biggest acquisition to date by LVMH, owned by France's richest man, Bernard Arnault. LVMH bought Bulgari in 2011, a deal that transformed its jewelry business.
For LVMH, adding Tiffany would bolster its smallest and newest business division, jewelry and watches, which includes Bulgari jewelry, Hublot and Tag Heuer watches, and expand its exposure to the bridal and diamond category, as well as to U.S. luxury shoppers.
"Tiffany is potentially the biggest prey and the only U.S. global luxury brand," analysts at Jefferies said, noting that its addition could double the size of LVMH's watches and jewelry division.
The business accounted for 9% of revenue and 7% of LVMH earnings in 2018, about only a fifth the size of its core fashion and handbag unit, home to Christian Dior, Givenchy and other brands like Fendi, in addition to Vuitton.
Monday's news stirred speculation about possible additional luxury sector deals, boosting shares in rival European watch and jewelry companies, including Salvatore Ferragamo, Pandora, Swatch and Richemont.
The potential deal also comes as some of LVMH's watch brands like Tag Heuer have struggled, in part as they try to adapt to the rise of smartwatches. The sector has also been hit hard by turmoil in Hong Kong, a major market for high-end timepieces.
CROWN JEWELS
Tiffany CEO Alessandro Bogliolo worked in various management roles at Bulgari for 16 years before leaving the company in 2012 after LVMH acquired it.
Tiffany is considered one of the top prizes in the highly competitive luxury jewelry market.
Jewelry was one of the strongest-performing areas of the luxury industry in 2018, according to consultancy Bain & Co, which forecast that comparable sales in the 18 billion euro ($20 billion) global market were set to grow 7% this year.
LVMH's rivals, Gucci-owner Kering (PA:PRTP) and Switzerland's Richemont, which owns Cartier, are also bulking up in high-end jewelry.