Tiffany Changes Loan Agreements as Bernard Arnault Mulls – WWD
Tiffany & Co. has gotten a bit of extra breathing space from its lenders, but it’s unclear if it will work. Bernard Arnault feel better about its planned acquisition of the jeweler for $ 16.2 billion.
As WWD first reported last week, Arnault-led luxury giant LVMH Moët Hennessy Louis Vuitton took a close look at the merger agreement signed in November and one of the areas under the microscope was Tiffany’s compliance with its covenants. If the jeweler breaks terms in its loan agreements, LVMH could likely use it to break the deal and opt out or negotiate a lower price.
Mark Erceg, Chief Financial Officer of Tiffany, said on Tuesday: “Tiffany has an investment grade track record, has sufficient liquidity and was in compliance with all covenants as of April 30, 2020. Nevertheless, we still made the decision – as we did it. many other companies – to change some of our debt agreements to create additional financial leeway in view of this unprecedented time. “
The changes last until the first quarter of next year and give the company more leverage by increasing the maximum leverage ratio and reducing the fixed charge coverage ratio on its various financing agreements.
But the fine print in the company’s loan documents isn’t the real long-term goal – whether at Tiffany’s headquarters in New York or in Paris, where LVMH Moët Hennessy Louis Vuitton is based. The larger questions revolve around the state of the business and longer-term prospects in a world transformed by coronavirus.
For the first quarter ended April 30, Tiffany posted losses of $ 64.6 million, or 53 cents per share, down from earnings of $ 125.2 million, or $ 1.03, a year ago earlier. Sales fell 45% to $ 555.5 million from $ 1 billion.
For his part, Alessandro Bogliolo, CEO of Tiffany, said the future was bright.
“The character and strength of Tiffany & Co. has been tested repeatedly over the past 183 years and, thanks to its exceptionally talented and dedicated employees, the company has always been able to persevere and succeed,” said Bogliolo. “This is why we have taken balanced and appropriate steps, like much of the luxury industry, to protect our valued employees who are the heart and soul of the brand. The entire Tiffany family has demonstrated extraordinary agility and is fully committed to ensuring that the deep connection we have established with our customers is enhanced and strengthened in these difficult times.
“I have no doubts that Tiffany’s best days lie ahead as there is evidence that the strategic decisions we have taken to focus on our domestic business in Mainland China, global e-commerce and new product innovation are bearing their weight. fruits, even in the context of a global pandemic, ”Bogliolo said.
The CEO pointed out:
• The rebound in China, where sales fell 85% at the start of the quarter, but then climbed 30% in April, compared to a year earlier.
• The performance of the company’s global e-commerce business, which increased 23% in the quarter.
• A good start for the Tiffany T1 collection in rose gold and gold with diamonds, which matched the company’s original projections even with many stores closed.
“For these reasons, and as I said earlier, I have no doubts that Tiffany’s best days are ahead of us and I am delighted that we are embarking on this journey with LVMH by our side,” said Bogliolo. “On the merger, we are delighted that there has been further progress with antitrust/ competition process in recent weeks; in particular, we obtained the authorization last week for the transaction of the Federal Antimonopoly Service of Russia and were informed at the end of May that the Mexican competition authority declared that our file was complete.
But there are more hurdles to overcome and the buyer – LVMH himself – could be one of them.