After a turbulent ‘engagement‘ period with LVMH Moët Hennessy Louis Vuitton (LVMH), the world’s leading jewellery brand Tiffany & Co and the global luxury goods market leader, has agreed to lower the price for a merger of their businesses to save its ‘marriage’ with the French giant.
In late October, the companies announced their agreement modifying some of their original agreement terms, which now fixed the purchase price at $131.50 per share in cash and softened the conditions of completing the deal.
Despite the negative impact of the COVID-19 pandemic and unlike the struggling competitors, Tiffany experienced a stock price drop in mid-March only. Despite the market turbulence, the LVMH’s ‘life-line’ maintained the share price of the global brand throughout the year until the conclusion of their ‘marriage agreement’.
If the companies continued to defend the mutual claims in court instead of a peace agreement, Tiffany would most likely have to enter into a forced ‘marriage’ that will result in less favourable conditions. The businesses merger is expected to complete in early 2021 subject to approval by the Tiffany’s shareholders.
The French Tribune calls the new LVMH-Tiffany agreement the good news for the global diamond industry that is in line with the gradual recovery of the diamond market in China and the United States.
The fine stone sales that do not have the status of a safe investment haven, unlike gold, collapsed in the first half of 2020 due to the spread of the coronavirus infection. This was preceded by a disastrous 2019 after the cloudless period of 2016-2018. The optimism returned to the market players this summer as the situation in the diamond market has been improving since June.
At the same time, the supply of rough diamonds is predicted to decline by about 20% after shutting down the small mines that could not survive under the COVID-19 pandemic conditions and as a result of the upcoming closure of the Australia’s Argyle mine this year owned by Rio Tinto, an Australian and British concern.
Although the global rough diamond reserves remain significant, they are effectively controlled by the ALROSA-De Beers ‘duo’. At the same time, there is certainly a competition between the natural and synthetic diamonds. However, for production reasons, the lab-growns have a significantly lower potential - especially in the expensive watches production segment - despite being modern, environmentally safe and produced ethically.
The diamond traders who link the mining companies’ products to the jewellery manufacturers and whose inventories determine the market dynamics are now resuming their operations, primarily in India.
In the United States, which accounts for 50% of the global polished diamond sales, the demand is forecast to pick up in light of the expected tax stimulus after the presidential elections in the US. In China, the jewellery sales have risen since March thanks to the deferred demand and they offset the losses incurred due to COVID-19 by about 15%. This figure is confirmed by the China’s huge imports of platinum and the consumption of this metal by Chinese jewellers equaled the demand for polished diamonds.
The Chai Tai Fook jewellery group, the leader of the Asian luxury market also saw an increase in the sales.
A 300% increase in the De Beers sales over the past three months is the confirmation that the diamond dealers are replenishing their inventories. At the same time, the last trading session figures were higher than in October 2017. ALROSA had also an upswing in trade, with sales already in line with 2019 figures.
Both miners have increased their margins by offering suitable and flexible prices for the rough diamonds depending on the volume, while the polished prices are rising.
The diamond market is a sign of changes to come to the luxury market, and the situation in the diamond industry suggested that LVMH did right by acquiring Tiffany during the low price cycle. Thus, LVMH will improve its access to the global high-end jewellery market.
Alex Shishlo for Rough&Polished
