Doubting Thomas Visits Tiffany Buyout (TIF, BRK-A, COH)

Tiffany & Co. (NYSE: TIF) has not  noticed that there have been five weeks of selling off in the broader equity markets nor that the economic data has faltered.  Shares have held up better than the DJIA and the S&P 500 Index during the latest pullback despite a significant rally to all-time highs recently.  Shares are up on word that Tiffany could become a buyout target of Richemont or another brand conglomerate group.  Consider a few things here before you get too excited about this.

Richemont is a brand conglomerate, but in high-end products.  Its brands include  Cartier, Alfred Dunhill, Van Cleef & Arpels, Piaget and Montblanc.

Before getting too wrapped up in this near-2% move today, Tiffany is one of those corporate names that has been on a “private equity wish list” for quite some time.  During the recession, Warren Buffett invested in the company’s preferred shares through Berkshire Hathaway Inc. (NYSE: BRK-A).

Another focus is that trading volume is not even 1.4 million shares after the half-way point of the trading day. We have seen nothing at all that comes across as being highly unusual in options trading via huge call option volume.  Tiffany also recently hiked its dividend.

There have also been buyout rumors before.  It used to be thrown around that LVMH may want to play Pac-Man.  Any large private equity player might have an interest.  With a market capitalization of about $9.5 billion, lining up a premium buyout might not be too easy.  With shares at $74.15 and a 52-week range of $35.81 to $77.02, the stock has already hit new all-time highs this year.

Our take: All bark, no bite.  If there was real interest then Tiffany would be trading up massively.  In case you hear “another mis-named buyout” target, that might be Coach, Inc. (NYSE: COH).  Coach has been one of the private equity wish lists in the past as well.  The problem that it is almost unrealistic with a $17+ billion buyback.  Both stocks also trade with well above their average multiples of earnings.

Whether you are buying Tiffany or Coach as investments, chances are now that you better be buying them because you want to own them for their long-term prospects.  This buyout chatter does not really coincide with any realistic scenarios for affordability.  The Doubting Thomas take would be that the time for a private equity group or a brand conglomerate to acquire Tiffany (and Coach) has come and gone.

JON C. OGG