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FT: Buffett Said to Reject Tiffany as Berkshire Sits on $128.2B in Cash

FT: Buffett Said to Reject Tiffany as Berkshire Sits on $128.2B in Cash
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By    |   Thursday, 02 January 2020 11:49 AM

Investing guru Warren Buffett reportedly rejected a deal to buy Tiffany & Co. after the jeweler received a takeover bid from French luxury conglomerate LVMH.

After the jeweler received a takeover bid from luxury goods company LVMH in November, Tiffany, LVMH offered Buffett the chance to make a counteroffer, but he declined, people with knowledge of the matter told the Financial Times.

Buffett confirmed to the Times that LVMH approached him with the opportunity.

Buffett — also know as the Oracle of Omaha — previously bought $250 million worth of the company’s bonds in 2009.

Berkshire Hathaway’s last full-company takeover was Precision Castparts in 2015, CNBC explained. Berkshire hasn’t meaningfully increased its buyback program, which means that Berkshire Hathaway is now sitting on a record $128.2 billion in cash, third quarter filings showed, CNBC said.

Buffett and Berkshire also in November lost a chance to acquire Tech Data Corp., Bloomberg explained at the time.

Berkshire made a $140-a-share bid for the distributor of technology products that was topped by a $145 offer from Apollo Global Management Inc., CNBC reported. The offer was another effort by the billionaire investor to put a chunk of his record $128 billion cash pile to use and signals that while Buffett is still on the prowl, he may not be willing to outbid private equity firms flush with money.

Buffett has been stymied on the acquisition front in recent years, causing the billionaire investor to express frustration about the “sky-high” prices for decent businesses. He said earlier this year that he was working on a large deal in the fourth quarter of 2018 but it eventually fell through. The lack of deals has also pressured Buffett’s ability to maintain the stock returns that helped make him famous. Berkshire’s stock is on track for its worst underperformance since 2009.

Berkshire’s interest forced Apollo to raise its bid to one that values Tech Data at about $6 billion, including debt. Tech Data helps bring products to market for firms such as Microsoft Corp. and Apple Inc., which is Berkshire’s largest public stock investment as it has a roughly $56 billion stake in the iPhone maker.

“He’s just not going to throw the money out and earn a rate of return below what his minimum target is,” David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business. “He is Buffett because he’s patient.”

Meanwhile in late November, France’s richest man added the biggest jewel yet to his collection, as Bernard Arnault clinched a deal to buy Tiffany & Co. for $16.2 billion.

If history is any guide, the LVMH chairman will move quickly to apply his tried-and-tested formula for growth to the tarnished U.S. brand: simultaneously expanding its presence across the world, especially in promising Asian markets, while boosting exclusivity and prices, Bloomberg recently explained.

It’s a difficult balance, but one that Arnault has been honing over three decades as he assembled a stable of luxury labels ranging from Louis Vuitton bags to Dom Perignon Champagne to Bulgari jewelry. While he’s had a few missteps, including purchases of Donna Karan and Marc Jacobs, LVMH has grown into the industry’s dominant player, with a market value of 203 billion euros ($223 billion). Arnault’s personal fortune has swelled to nearly half that amount.

“We will get our inspiration from our experience with Bulgari,” Arnault said in an interview. “We modernized and expanded their product lines. We reviewed their look. We reviewed communications.”

The 182-year-old U.S. jeweler, known for its robin’s egg blue boxes and a role in Truman Capote’s “Breakfast at Tiffany’s,” is a cultural icon in the U.S., but its reliance on that market and struggles of late have undermined its appeal. Tiffany’s operating margin of 17% is about half the level of LVMH rival Richemont’s jewelry business, which includes Cartier and Van Cleef & Arpels.

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Investing guru Warren Buffett reportedly rejected a deal buy Tiffany & Co. after the jeweler received a takeover bid from luxury goods company LVMH in November.
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2020-49-02
Thursday, 02 January 2020 11:49 AM
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