There’s a reason Bernard Arnault is the world’s richest person. The chairman, CEO, and controlling shareholder of
LVMH Moët Hennessy Louis Vuitton,
the world’s largest luxury-goods merchant, knows how to buy companies and integrate them. He’s a shrewd negotiator, too.
On LVMH’s recent earnings call, Arnault crowed over his company’s 2021 purchase of Tiffany, saying that Tiffany’s earnings had doubled since the deal. Tiffany, for the first time, will have more than one billion euros [$1.08 billion] in profits, he said, adding: “We were barely at half that when we acquired the business. Everyone said to me, ‘Why are you buying this business at that price; it’s far too much.’ But, I mean, it wasn’t perhaps managed in the most dynamic way. I won’t dwell on that….but if it were listed today, [it would] probably [be] worth twice as much.”
The deal was contentious. LVMH agreed to pay more than $16 billion for the U.S. jewelry retailer in late 2019, then tried to back out in September 2020 after the pandemic hit Tiffany’s sales and revenue. The companies then recut the deal. LVMH ultimately paid $131.50 a share for Tiffany, below the initial $135, or about 30 times Tiffany’s 2019 net income of $550 million. The current multiple is roughly 15 times, based on Arnault’s statement that earnings have doubled.
LVMH has excelled at acquisitions, including buying cosmetic retailer Sephora in 1997 for little more than $200 million and luxury jeweler Bulgari for $5 billion in 2011. Arnault, 73, is now worth $190 billion, according to Bloomberg’s tally, beating out No. 2-ranked Elon Musk, with $170 billion.
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A Job Explosion
After a gloomy Monday, stocks rose strongly on Tuesday to put a bow on a strong January. The IMF raised global growth forecasts, with only the U.K. among major economies contracting. A giant strike of U.K. government workers won’t help. The Federal Reserve raised rates by a quarter-point, and job creation blew the doors off, up 517,000, with unemployment down to 3.4%. On the week, the
Dow Jones Industrial Average
was off 1.5%, to 33,926.01; the
rose 1.6%, to 4136.48; and the Nasdaq Composite soared 3.3%, to 12,006.95.
The Fed Hikes
As expected, the Fed lifted rates by 0.25%, to 4.5% to 4.75%. Fed Chairman Jerome Powell noted that while inflation was easing, and the “disinflation process” was beginning, increases would still be in the works. The Bank of England and the European Central Bank followed, raising rates to 4% and 2.5%, respectively. It was the BOE’s 10th straight rate hike.
Earnings seasons accelerated. Caterpillar missed for the first time since 2020. Exxon Mobil and General Motorsboth beat—the latter surprisingly. Then came a ton of tech: Spotify beat, Advanced Micro Devices saw earnings fall 98% and still beat. Snap missed, but Meta Platforms beat on revenue forecasts and buybacks, and shares soared. Apple and Alphabet missed, and Amazon.com beat but offered weak guidance.
House Speaker Kevin McCarthy met with President Joe Biden as the debt- default dance began. Biden had said he would negotiate over a budget but not the debt-default ceiling. McCarthy came out of the meeting optimistic that talks on deficit reduction would continue, though there were few details about what that might mean.
A New Offensive?
Ukraine warned of a Russian offensive in the Donbas, as Russian forces massed along frontlines. The European Union and the G-7 agreed to cap premium Russian oil products such as diesel at $100 a barrel.
The Adani Meltdown
Shares of companies linked to Indian conglomerate Adani Group lost more than $120 billion, and counting, in the wake of a report from short seller Hindenburg Research that alleged widespread fraud. Adani released a rebuttal last Sunday that failed to stem declines. The Hindenburg report preceded an Adani $2.5 billion share offering, which was fully subscribed but had to be canceled as the meltdown continued, Adani bonds fell, and contagion fears mounted.
Annals of Deal Making
Elon Musk appears to have made his first interest payment on $12.5 billion in debt to buy Twitter. Separately, Musk was found not liable for investor losses in the “funding secured” tweet case…Bed Bath & Beyond said it would close 87 more stores and received a notice of default on a loan from JPMorgan Chase on Jan. 13.
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