By Sarah White and Dominique Vidalon
PARIS (Reuters) - LVMH has offered to buy Tiffany & Co (NYSE:TIF), known for its engagement rings and ties to Hollywood glamor, as the owner of Louis Vuitton and Bulgari seeks to expand in jewelery, one of the fastest-growing parts of the luxury goods market.
In a deal that would beef up its smallest business, LVMH on Monday said it had approached Tiffany about an unsolicited non-binding offer without giving further details.
Confirming the move, Tiffany said the offer was worth $120 per share, which would value Tiffany at nearly $14.5 billion and represents a 22% premium over the stock's closing price on Friday.
LVMH said there was no guarantee that preliminary discussions would result in an agreement.
Several analysts said Tiffany might reject the offer to seek a higher price tag, potentially kicking off a battle for control of the company known for its signature egg-blue packaging.
Analysts said Tiffany could be worth as much as $140-$160 per share. The stock trades at a big discount to its U.S and European sector.
Cash-rich LVMH can also afford a higher price it wants to clinch a deal. UBS analysts said LVMH had an M&A firepower of some 40 billion euros.
By 1114 GMT Tiffany's Frankfurt-listed shares were up 17.7% while LVMH shares were up 0.3%.
GLOBAL BRAND
Tiffany, founded in New York in 1837 and made famous by the 1961 movie "Breakfast at Tiffany's" starring Audrey Hepburn, said it was still reviewing the proposal and is "not in discussions".
If the deal goes ahead, it would be the biggest acquisition to date by LVMH, owned by France's richest man Bernard Arnault, and comes after it bought Bulgari in 2011.
For LVMH, it would bolster its smallest and newest business division, jewelery and watches, which includes Bulgari jewelery, Hublot and Tag Heuer watches, and expand its exposure to the bridal and diamond category and to U.S. luxury shoppers.
"Tiffany is potentially the biggest prey and the only U.S. global luxury brand," analysts at Jefferies said.
"This move would potentially double the size and the profitability of LVMH's weaker Hard Luxury (watches and jewelery) division," they added.
This business accounted for 9% of revenue and 7% of earnings in 2018, about only a fifth the size of its core fashion and handbag unit, home to Christian Dior, Givenchy and other brands like Fendi in addition to Vuitton.
Graphic: Tiffany at a discount to peers - https://tmsnrt.rs/36cVTYE
The news stirred speculation about possible luxury sector dealmaking, boosting shares in rival European watch and jewelery companies including Salvatore Ferragamo, Pandora, Swatch and Richemont.
The potential deal also comes as some of LVMH's watch labels like Tag Heuer have struggled, in part as they try to adapt to the rise of smartwatches, while this sector has also been hit hard by turmoil in Hong Kong, a major market for high-end timepieces.
PRIZE ASSET
Tiffany is one of the jewelery sector's top prizes.
Cowen analysts said that Tiffany deserved "an exceptional premium of 20 times EBITDA or higher, or $160", citing "a host of potential revenue and expense synergies that can be created from the acquisition."
Credit Suisse (SIX:CSGN) analysts said a bid could "quickly reach $140 per share" and still be 5% accretive to LVMH earnings in year 1.
Jewelery has more broadly has been one of the strongest performing areas of the luxury industry in 2018, according to consultancy Bain & Co, which forecast that comparable sales in the 18 billion euro ($20 billion) global market were set to grow 7% this year.
LVMH's rivals are also bulking up in jewelery.
Kering (PA:PRTP) has been looking to expand in this area, including by launching high-end jewelery lines for its fashion brand Gucci.
Switzerland's Richemont, meanwhile, a sector leader with labels like Cartier, has also been adding to its portfolio, and recently acquired Italy's Buccellati.
($1 = 0.9011 euros)