Jewelry web blog

There is a growing sense of irritation in the stylish Parisian Avenue Montaigne headquarters of LVMH, the world’s leading luxury goods group, which is controlled by Bernard Arnault. Every week, some rumour pops up in the market that Mr Arnault is about to splash out to buy yet another luxury brand to add to his impressive collection.

A fortnight ago it was again the turn of Hermes, the French family-controlled group, to be the centre of renewed speculation that LVMH was considering taking it over. Sure, Mr Arnault would probably dearly love one day to get his hands on such a prestigious luxury brand as Hermes. But the family, so far at least, does not seem to be in any mood or hurry to sell. Any eventual predator should also quickly forget the idea of making an unsolicited approach given the venerable company’s rock-solid anti-takeover defences.

This week it was the old tiffany rumour that was briefly doing the rounds again in the market. Unlike Hermes, the famous US jeweller is a widely held group, with an activist investor holding the single largest stake of around 8 per cent. He would probably like to make a deal and LVMH has undoubtedly studied the possibility. But that certainly does not mean it is interested – far from it, judging from the annoyed reaction of group insiders whenever the subject is raised.

Tiffany could tempt Mr Arnault for several reasons, claim the rumour-mongers. It would strengthen his group’s presence in the jewellery and watches business where LVMH still trails its Swiss rival Richemont, owner of brands such as Cartier, Van Cleef and Piaget. This sector of the luxury goods industry is continuing to grow strongly even in the current difficult economic climate.

The weak dollar also offers a good window of opportunity to make a US acquisition.

Yet the takeover speculation of the past year has pushed Tiffany’s share price to a level that would make any acquisition even with the low dollar very expensive – more than Dollars 6bn, according to some estimates. Second, Tiffany does not really fit with Mr Arnault’s strategy of concentrating on upscale luxury groups. For although it is well-known for its diamonds, Tiffany is also regarded by many as a low-level luxury brand, selling silver jewellery at very affordable prices.

Last, but not least, the US group also possesses an inherent poison tiffany pill following its recent 20-year alliance with Swatch. Under this partnership, the Swiss group will help Tiffany develop its watch collections. So anybody acquiring Tiffany would have to decide whether it wanted to pursue this collaboration in watches with the Swiss company. If not, as would undoubtedly be the case of LVMH, it would be forced into what would inevitably be costly and complex negotiations with the Swiss to break their long-term agreement.

That said, Mr Arnault will continue to be the centre of stock market speculation over his next big luxury shopping spree. Now that the Hermes and Tiffany rumours have come and gone, it will probably be the turn of Bulgari – the Italian family-controlled jeweller that regularly features as a potential LVMH target – to command the market’s attention. All very annoying for Mr Arnault, but that is the price of being the undisputed king of luxury.

Last hurrah smiles over Wahaha

There are now signs that the 18-month legal battle between Danone and its Chinese joint venture partner is about to end. It has been a particularly acrimonious dispute that has even required the intervention of French president Nicolas Sarkozy and the Chinese leadership. But the two sides have finally agreed on a simple compromise whereby pendants  either the French food group pulls out entirely from the Wahaha joint venture, or vice-versa.

Previous efforts to settle the dispute have failed, but the pressure to reach an agreement has been building up on Danone’s Chinese partner, entrepreneur Zong Qinghou.

At the same time, the French group indicated it had spent enough management time and money on the issue and now intended to pursue its own go-it-alone strategy in China. It deconsolidated the joint venture from its balance sheet and – through its acquisition of Numico, the Dutch baby-food maker – Danone now has a well-established vehicle in China.

The two sides are negotiating who will ultimately take over the whole of  rings Wahaha. No middle road or intermediate solution is envisaged because of the total breakdown of confidence between the two former partners.

This bitter saga throws a revealing light on the economic evolution of the country where local entrepreneurs, once tied in joint ventures with foreign companies, are increasingly turning into direct competitors of their former foreign partners.