The writer is a former investment banker and author of Power Failure: The Rise and Fall of an American Icon
Both Bernard Arnault, newly crowned the world’s richest person, and Elon Musk, his predecessor at the top, have overpaid for acquisitions and then regretted it. But what happened next reveals their vast differences as businessmen.
In short, Arnault is a savvy and clever dealmaker who has built his Paris-based LVMH into a luxury-brand behemoth, worth more than $400bn, and his own fortune to more than $180bn. By contrast, Musk’s poor judgment when it comes to doing deals has cost him billions although he still commands a net worth of more than $130bn.
Let’s compare each man’s last big deal. In November 2019, Arnault’s LVMH agreed to pay $135 per share, or $16.2bn for Tiffany & Co, the crown jewel of American luxury. The agreement followed by a few weeks LVMH’s $120-a-share unsolicited offer for Tiffany. It was nearly a perfect fit with LVMH and Arnault decided he had to have it, after he lost previous battles to acquire both Gucci and Hermès.
The purchase price was a hefty 37 per cent premium to where Tiffany’s stock was trading before the deal was announced and the value of the deal, including net debt, was nearly 17 times Tiffany’s earnings before interest, tax, depreciation and amortisation. When the Covid-19 pandemic hit four months later, though, the pricey Tiffany acquisition did not look so smart. Arnault started backtracking. After a back and forth between the parties, duelling lawsuits were filed in Delaware.
But then cooler heads prevailed. In October 2020, the two sides re-cut the deal. Arnault agreed to pay $15.8bn for Tiffany, a saving of a rather modest $420mn. It was clearly a face-saving measure for Arnault. When the Tiffany deal closed, in January 2021, Arnault axed Tiffany’s top executives, including its chief executive, its chief artistic director and its chief brand director and installed his own team, including one of his sons, Alexandre, as executive vice-president of product and communications. Tiffany’s employee numbers are still around the 14,000 level at the time of the buyout.
If any of this sounds familiar to Musk’s 2022 assault on Twitter, it should. After building a 9.2 per cent stake in the company, Musk last April made an unsolicited offer to buy Twitter for $54.20 a share, or $44bn. His offer was a 38 per cent premium to where the stock had been trading and a whopping 44 times Twitter’s ebitda. Given the huge price, the Twitter board of directors had little choice but to accept it.
Nearly immediately, Musk had buyer’s remorse. He tried nearly everything to get out of the deal. Like Arnault and Tiffany, the two sides took their dispute to the Delaware courts. But as the evidence began trickling out, in the form of damning emails, texts and documents, the prospects of Musk’s court case seemed dim. He tried, unsuccessfully, to cut a new deal with the Twitter board. But it refused to budge. Musk agreed to close the Twitter deal in late October at his original $44bn price.
Then all hell broke out. Musk quickly dispensed with Twitter management and then more than half of its 7,500-person workforce. He alienated advertisers and many users with erratic tweets and botched product changes. Musk has warned Twitter is losing $4mn a day and the company might have to file for bankruptcy.
If he has a master plan for Twitter, it is not clear what it is. Musk’s inexplicable flailings have eroded a considerable amount of the $31bn of equity he and his partners invested in the Twitter deal and some of the value of the $13bn of debt held by Twitter’s Wall Street banks.
Meanwhile, over at Tesla, the source of much of Musk’s wealth, shares in the electric vehicle company have plunged. Part of this is due to a wider sell-off in tech and growth stocks. But Musk’s preoccupation with Twitter and the management dramas at the social network has also spooked some Tesla investors. The Tesla stock lost 70 per cent of its value in 2022. According to Bloomberg, Musk’s fortune has declined about $130bn from a 2022 peak last April. All in all, the Twitter deal is clearly a self-inflicted disaster.
Meanwhile, the Tiffany deal has turned into a smashing success. The demand for luxury goods remains robust as does Arnault’s deft touch with them. At the LVMH annual meeting in 2022, Arnault called bringing Tiffany into LVMH “the highlight of the year” given its outstanding financial performance, including higher revenue, profits, and cash flow. At the 2022 annual meeting Arnault boasted that if Tiffany were still a public company, its share price would be double what LVMH paid. Arnault has been called the Sun Tzu of Luxury. It’s not hard to see why.
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