gaining mutual value through mergers between well known fashion brands case study applied ma activity between lvmh and tiffany co

VIETNAM GENERAL CONFEDERATION OF LABOUR TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION BAI HOC TON ĐỨC THẮNG REPORT NEGOTIATION IN BUSINESS Gaining mutual value through

VIETNAM GENERAL CONFEDERATION OF LABOUR

TON DUC THANG UNIVERSITY FACULTY OF BUSINESS ADMINISTRATION

BAI HOC TON ĐỨC THẮNG REPORT NEGOTIATION IN BUSINESS

Gaining mutual value through mergers between well-known fashion brands

Case study applied M&A activity between LVMH and

Tiffany & Co

EVALUATION OF WORK PERFORMANCE LEVELS

- 3.3 Scenarios in negotiations between Tiffany and LVMH

- 3.2.1 Applying the theory of Tiffany and LVMH

EVALUATION OF LECTURER

TABLE OF CONTENTS

LIST OF TABLES 7 LIST OF CHARTS 8 LIST OF FIGURES 9 ACKNOWLEDGMENTS 10 CHAPTER 1: OVERVIEW Il

1.1 General overview 11 1.2 General introduction of the negotiating parties 15 L.2.1 Tiffany & CO cccccccsccccsessecsecssessesseesensecsecsecseesscsecsaesseaeeaessecaesaeenecneeeeeas 15 n2 15

CHAPTER 2: LITERATURE REVIEW 19

2.1 BATNAs (Best Alternative To a Negotiated Aøreemenf) - << 19 2.2 ZOPA (Zone of possible agreement) 20 2.3 Integrative negotiations 21

CHAPTER 3: NEGOTIATION ANALYSIS 23

3.1 Summarise the case study 23

3.2 Analyze the case study 23 3.2.1 Applying theory 1m the cas€ SfUdy L2 2.1211 2122122222 2 2E Hn Hey 23 3.2.1.1 BATNA cocci ccc cece cece ce cne cent ceeeceseceeeciesiaessatesatessesiesssesisesiesssesssectsecsees 23 Z2 82/9 he 25 3.2.1.3 IntegratIve negofIafIOHI - ác 2 1212112111211 111 11812 2tr na 26 3.2.2 390i n S6 27 3.2.2.1 Before MA TT€TĐ€T L0 20 0201121110111 11111171111 1011 10112 tre 27

E5 na g9 27

3.2.2.1.2 LVMH Goods and JewelÌry Co 1 2122111 11 re 28 3.2.2.2 After MA TI€TĐ€T ccc 122122112211 1211 18111811111 1111111011 101151112 re 28 3.3 The scenario in negofiafons between LVMH and Tiffany & Co 30 3.3.1 Scenario 1: Richemont - a competitor of LVMH proposes to acquire Tiffany &

CO Q.01 1 1 cece eeneeneeeeeeeeesecsecseeseeseeseeseeeseeseeeecsecsecseeseesecsseeeeseesesseeseeseessesssseneens 31 3.3.2 Scenario 2: LVMH pressures prices as Tiffany & Co faces challenges 32 3.3.3 Scenario 3: LVMH and Tiffany & Co collaborate to expand the luxury jewelry H419 <iiaiaẳíaaẳađađađđiđiđiđiíi.i(đdđddadaai5ỐỔŸÃ 33

3.4 Evaluation 34

E6 ôn nh «- ắốố.ăăăăă 34 E8 1 Ố 36

CHAPTER 4: SOLUTION 37

4.1 Solutions to problems that have occurred in the past ccssccsccsssssssscssescessesssesees 37 4.2 Solutions to future problems 38

CHAPTER 5: CONCLUSION 40 REFERENCES 41

LIST OF TABLES Table 1: Timeline of the merger between LVMH and Tiffany & Co 16 Table 2: Scenario in negofiations between LVMH and Tiffany & Co 30

LIST OF CHARTS Chart 1.1: Growth rate of luxury goods industry in the period of 2013 - 2025 13 Chart 1.2: GDP growth rate in the period 2016 - 2020.00 eects 14 Chart 1.3: Market value of luxury øoods ín Vietnam - 5 2c Sex csecxse 15 Chart 3.1: LVMH's earnings statement for 2020 - 2022 - Q SQ nhe 29 Chart 3.2: Tiffany & CO.'s brand value 2020-2023 - Q SH He 30

LIST OF FIGURES Figure 1.1: Timeline 4 stages of COVID-19 in Vieftnam eet il Figure 2.1; The relationship between each party's best alternative to the negotiated agreement (Seller and Buyer) .0 0 ccccccccccccsssecessecssseesseecsseeeseesesesssseeeiessnsstesseeenes 19 Figure 2.2: About ZOPA of the two sides 00.00c ccc cece ete eeteeeseeneeeateeatenateneee 21 Figure 3.1: Members of LVMH Goods and Jewelry Co «2.000.000 cecectcetteeteeees 25 Form 3.2: ZOPA of LVMH and Tiffany & Co Q0 0n na re 26 Figure 3.3: Brands of the Richemont Group - S21 SH tre 31

ACKNOWLEDGMENTS

First of all, we would like to express our deep gratitude to Ton Duc Thang University and the Faculty of Business Administration, especially Mr Tran Khanh, for the support and facilitation we have received to carry out the report on Business Negotiation

We would like to sincerely thank Mr Tran Khanh, teacher of Business Negotiation and Negotiation, for taking the time and effort to guide and guide us throughout the research and implementation of the report This subject requires a deep understanding of negotiation techniques and the ability to negotiate in a business environment Thanks to his dedicated guidance, we had the opportunity to better understand negotiation _ strategies, communication skills, and how to apply them in practice

We have completed our report, however, due to deficiencies in experience and knowledge, we are aware that there are aspects that need to be improved We look forward

to receiving sincere and useful comments from Mr Tran Khanh so that we can improve and improve the quality of this research project Once again, we sincerely thank him for his valuable support and teaching during his time studying this subject

CHAPTER 1: OVERVIEW 1.1 General overview

In its report published in 2020, the International Monetary Fund (IMF) warmed of the impact of the COVID-19 pandemic on every region of the globe, leading to a low decline in world GDP, a 4.9% decline compared to 2019, a higher decline than the 1.7% decline during the 2008 financial crisis The Organization for Economic Co-operation and Development (OECD) has also forecast that if the COVID-19 pandemic breaks out for a second time, global GDP could fall by -7.6%

This is the first time that countries around the world have had to implement unprecedented measures such as lockdowns, social distancing, border closures, and the suspension of many service activities such as aviation and tourism The impact of the pandemic has caused severe disruptions in economic activities, disrupting production and supply chains This could lead to an economic recession that could be the worst in modern history

COVID-19 PANDEMIC TIMELINE IN VIETNAM

* 100 community + 554 community * 910 community + 601349 cases

* No deaths + 35 deaths + No deaths * CFR: 2.50%

Figure 1.1: Timeline 4 stages of COVID-19 in Vietnam

Source: Front Public Health, 2021

In 2021, the World Tourism Organization (UNWTO) projected that the COVID-19 pandemic had created huge losses to the global economy, estimated at $2.4 trillion due to the collapse of the international tourism industry In the list of countries suffering the highest losses in GDP due to the decline in tourism, there are the appearance of Turkey (-

11

9.1%), Ecuador (-9%), South Africa (-8.1%), Ireland (-5.9%) According to a UN report, the number of international tourists decreased by about | billion, meaning a 73% decrease

in 2020 In the first quarter of 2021, the decline amounted to 88% The hardest hit regions are Northeast Asia, Southeast Asia, Oceania, North Africa and South Asia; while North America, Western Europe and the Caribbean were less affected The International Labour Organization (ILO) has also assessed the impact of the COVID-19 pandemic on tourism employment in Asia and the Pacific The ILO report said that the Philippines, Viet Nam, Thailand, Brunei and Mongolia lost 1/3 of their jobs due to COVID-19, with job losses in tourism-related industries 4 times higher than other industries in 2020

The luxury sector is also not immune to negative effects The luxury jewelry market, after 20 years of steady development and growth, experienced its first decline in nearly a decade due to the impact of the COVID crisis First, Asia has eclipsed Europe and North America, the main regions in 2019 Secondly, distribution channels were also affected by the Covid-19 pandemic Many businesses avoid selling products online up to this point, preferring to keep the credibility of their luxury brands through physical stores However, the pandemic has altered the environment significantly; Lockdowns and travel restrictions have forced businesses to rethink and make specific adjustments to minimize possible losses and damages Most luxury companies are ramping up their online presence at this point to compensate for the closures of physical stores and other brands that have allowed retailers to distribute their items online for the first time In 2020, the global luxury category, which includes luxury goods (from yachts to fashion accessories, wine and food) and experiences (accommodation, travel and services), reported sales of €1 trillion, down around 20% compared to 2019 The market for personal luxury goods (fashion, accessories and jewelry) shrank for the first time since 2009, falling 23% between 2019 and 2020, to

€217 billion

After a bad 2020, the L&F sector showed some resilience and started to recover in

2021 According to Bain, the luxury market grew 13 to 15 percent from 2020 and reached

$1.14 trillion, although volumes were 9 to 11 percent lower than in 2019 The global luxury jewelry market is expected to reach USD 1.09 trillion in revenue by 2023 with a steady annual growth rate of 4.39% (CAGR 2023-2026)

12

Chart 1.1: Growth rate of luxury goods industry in the period of 2013 - 2025

Source: Statista, 2023

According to the division of the Ministry of Health, up to this point, Vietnam has gone through four important stages since the emergence of the Covid-19 epidemic Although Vietnam has well controlled the Covid-19 epidemic, the economy is still heavily affected According to the General Statistics Office, 85.7% of the 126,565 businesses surveyed in the early stages of the epidemic reported that they were affected Industries such as aviation, accommodation services, food services, travel agencies, education and training, textiles, leather manufacturing, electronic products and automobiles all face major difficulties, with impact rates exceeding 90% In particular, the service and tourism industries are the sectors that most clearly reflect the negative impact from the Covid-19 pandemic Sectors such as tourism and transport, especially air transport, have experienced severe declines, mainly due to movement restrictions and social distancing measures In the first 6 months of 2020, the number of international visitors decreased by 55.8% compared

to the same period last year (while Q1 decreased by 18%), and domestic visitors also decreased by 27.3% (QI decreased by 6%) Industry revenue decreased by 77.8%, which

is much higher than the 11% decline of QI 2020

Chart 1.2: GDP growth rate in the period 2016 - 2020

TOC BO TANG TRƯỞNG GDP GIAI ĐOẠN 2016-2020 (%)

Moving into the first months of 2021, Vietnam has faced the third wave of the Covid-

19 epidemic and the fourth phase of outbreak again, with the emergence of new variants, rapidly evolving and complicated However, overall, Vietnam's economic picture in the first 5 months of 2021 remained stable and recorded positive results in many different fields

In Vietnam, the high-end jewelry market is recovering from the pandemic However, the macroeconomic downturn has led to a decrease in consumer spending, including on luxury goods In Q2 2023, gold demand in Vietnam will decrease by 9% compared to the same period last year The gold jewellery segment also recorded a decline from 4.5 tonnes

in Q2 2022 to 3.7 tonnes in Q? 2023, representing an 18% year-on-year decline Despite the challenges, the luxury goods market is still expected to grow in the long term

Chart 1.3: Market value of luxury goods in Vietnam

Source: Statista, 2023

1.2 General introduction of the negotiating parties

1.2.1 Tiffany & Co

Tiffany & Co was founded in 1837 by Charles Lewis, Tiffany and John B Young

in New York City, as a "stationery and fancy goods store." The store originally sold a variety of stationery items and operated as "Tiffany, Young and Ellis" at 259 Broadway in Lower Manhattan The name was shortened to Tiffany & Company in 1853, when Charles Tiffany took control and established the company's emphasis on jewelry Since then, the company has opened stores in major cities worldwide and is famous for its luxury goods, especially silver and diamond jewelry In 2018, net sales reached $4.44 billion As of 2023, Tiffany already operates more than 300 stores globally, in multiple countries including the United States, Japan, and Canada, as well as Europe, Latin America, and the Asia-Pacific region, and is exploring opportunities in Africa Some of Tiffany & Co's competitors include Cartier, Harry Winston, Bvlgari, Chopard Group, and Swarovski

1.2.2 LVMH:

By combining Louis Vuitton and Moét Hennessy in 1987, Bernard Arnault created LVMH, the world's largest conglomerate in luxury goods LVMH has operations in the United States, the Middle East, Asia and Europe Its headquarters are in Paris, France The group comprises 75 reputable brands (or companies) in six industries, including fashion

and leather goods, watches and jewelry, wine and spirits, perfumes and cosmetics, select retail, and others

LVMH's current size can be estimated by looking at the high-end fashion brands it owns, such as Bvlgari, Celine, Fendi, Givenchy, TAG Heuer, and Tiffany & Co Each brand has a long history and distinct personality Technically, it's all managed by LVMH, which operates under this umbrella as a unique brand and builds on its more than two-century-old heritage The group is the largest in the L&F business, as evidenced by revenues of 64.2 billion euros in 2021 (+44% compared to 2020), net profit of 12 billion euros (+156% compared to 2020), operations in 80 countries, 175,647 employees and 5,556 stores worldwide

One of LVMH's competitors is Richemont, another Switzerland-based luxury group that manufactures and sells luxury products such as jewelry, watches, fashion, and accessories The group owns many famous luxury brands such as Cartier, Van Cleef & Arpels, IWC, Schaffhausen, Montblanc, Dunhill, Chloé, Lancel

28/9 | LVMH files lawsuit against Tiffany & Co in U.S court

Businesses may choose to collaborate or pursue other options in the global market

in response to a variety of factors, including diminishing sales that result mn losses or rivals acquiring a greater competitive edge Complex market fluctuations can hurt firms in a lot

of ways As a result, the necessity for development drew companies with similar objectives and visions closer together, which ultimately resulted in the choice to collaborate and merge

The merger between LVMH and Tiffany & Co is an example of how large corporations can merge to create maximum value for themselves and their customers through a combination of assets, reputation, and resources The negotiation process of the deal began in 2019 LVMH has long been known as a leading brand in luxury retail The company is headquartered in Paris, France and controlled by billionaire Bernard Arnault, France's richest man This brand owns dozens of famous brands, including Louis Vuitton, Christian Dior, Blvgari, Fendi Meanwhile, Tiffany is facing many difficulties In addition

to the tariffs caused by the trade war between the United States and China, lower domestic sales taxes in China had also deeply reduced sales Tiffany is headquartered in New York, USA and is famous for its expensive diamond engagement rings with over 300 retail stores worldwide

The largest merger in the luxury sector would portend a bright future At a moment when the luxury market was beginning to flag, LVMH might give Tiffany & Co a way out

of quarterly reporting and add a formidable stone to its crown LVMH is expected to surpass Richemont, the parent company of Cartier and Van Cleef & Arpels, which holds a dominant share of the luxury jewelry market at 14.8%, by doubling, to reach 18.4% of the market One development focus that both Tiffany & Co and LVMH have in common is the prospective Chinese market With more than 40 stores, Tiffany & Co is one of the most beloved jewelry companies in China, second only to Cartier Tiffany & Co.'s goal is to become more influential in the nation that has the most spending power on luxury products, but it also wants to help artists in other ways This includes sponsoring artists through exhibitions and ongoing partnerships with museums and art groups These tactics bear a striking resemblance to the artistic investments that have long been LVMH's forte

In addition, Tiffany's coffee chain - Blue Box Café, also shares the same idea with

Le Café V or Louis Vuitton's Sugalabo restaurant in Osaka, Japan, stemming from the ambition to target millennial and Gen Z luxury consumers The development strategy of this brand is therefore associated with brand value positioning, in-store experience, in-store technology as well as personalized design Therefore, LVMH certainly cannot disregard this set of potential customers, as well as affirm its "big" position in the luxury business market

1.5 Objectives

Within the limits of the article, the authors aim to achieve the following objectives:

Understanding the merger process

Clear understanding of business strategy analysis

To evaluate the effectiveness of the deal

Research on the impact of deals on the market

Analysis of corporate culture after the merger

With the above objectives, the authors chose the topic as "Increasing common value through mergers between famous fashion brands - Applied in the deal between LVMH and Tiffany & Co." for the final report

CHAPTER 2: LITERATURE REVIEW

2.1 BATNAs (Best Alternative To a Negotiated Agreement)

Negotiation is seen as a central aspect of organizational life The growing complexities of work relationships, , the increasing reliance on teams to make decisions, and the rise of new organizational forms have practitioners alike have focused on identifying the mechanisms that can improve negotiator performance (Lewicki, Saunders and Minton, 1999)

BATNA (Best Alternative To a Negotiated Agreement) 1s the most advantageous alternative that a negotiating party can take if negotiations fail and an agreement cannot be made In other words, a party’s BATNA is what a party’s alternative is if negotiations are unsuccessful (Roger Fisher and William Ury, 1981) According to Fisher, Ury, and Patton, BATNA is the "only standard" that can protect you both from accepting terms that are too unfavorable and rejecting terms that it is in your interest to accept Based on the above definition, BATNA is specifically considered the best result that a participant in this negotiation can achieve when negotiations are concluded

Seller's Worst Case Seller's Desired Price

Seller’s Settlement Range

Buyer's Settlement Range

| |

Buyer’s Desired Price Buyer's Worst Case

Figure 2.1; The relationship between each party's best alternative to the negotiated

agreement (seller and buyer)

Source: CFI team When negotiators have a strong BATNA, they will feel comfortable abandoning an agreement that does not meet other needs to support an agreement (Pon Staff, 2022) On the other hand, if negotiators have a weak BATNA, they should hold onto it A strong

19

BATNA in negotiations improves negotiators’ outcomes better than the initial negotiation zone (Kim & Fragale, 2005)

Related to this report, it is easy to identify BATNA theories applied by enterprises such as LVMH and Tiffany & Co in the case of buying and selling company shares With LVMH’s BATNA, they have the ability to merge globally valued jewelry brands like Cartier With Tiffany’s BATNA, the jewelry company can accept mergers with large corporations that are competitors to LVMH such as Richemont and Labelux

BATNA is often used in negotiation tactics and should always be considered before negotiations take place Itis never wise to enter a serious negotiation without knowing your BATNA The value of knowing your own BATNA deal includes providing an alternative

if negotiations fail, bringing in negotiating power, and identifying your result (the worst price you're willing to accept)

BATNA not only helps negotiators avoid unnecessary negotiations, but also helps them avoid unfavorable agreements In addition, the best alternative is evaluated as an objective basis for knowing when to withdraw Without BATNA, negotiators face to face the risk of identifying stops from which to make refusals Then the participants will be able

to reject an offer that is better than the intended or accept a less favorable offer as the intended purpose

2.2 ZOPA (Zone of possible agreement)

ZOPA 1s an area that is built from preset cut off points between the parties, including

an area of agreement that can satisfy both parties (Fisher R, Ury WL, 1991) In anegotiation, whether it includes many possible transactions or just one option, ZOPA — the area in which both parties can reach a mutually beneficial agreement is a necessary condition to achieve agreement Without ZOPA, any agreement would not be acceptable to at least one party (Rochelle-Leigh (Shelley) Rosenberg, 2011) In other words, ZOPA (Zone Of Possible Agreement) or also known as "Zone Of Possible Agreement" is the range in a negotiation

in which two or more parties can find common ground Here, the negotiating parties can work toward a common goal and reach a potential agreement that incorporates at least some

of the other's ideas The price accepted by each party determines the limits of the agreed-

20

upon zone as feasible The workable agreement zone itself exists at the intersection of high and low limits, 1.e between the prices accepted by the two parties

ZOPA analysis should begin with considering the best alternative to the negotiated agreement or BATNA as Roger Fisher, William Ury and Bruce Patton write in their far- reaching negotiating text: Negotiate agreements without concessions

It's a huge advantage to know the upper and lower boundaries of a ZOPA A negotiator is understandably reluctant to disclose their walkaway, or bottom line, as it’s the least attractive deal they would accept before walking away from the negotiation By knowing the boundaries of a ZOPA, it's possible to push your counterpart close to their limit to reach a favorable deal

2.3 Integrative negotiations

In an integrative negotiation strategy, parties explore options to increase the scale of common interests, before focusing on the distribution of interests (Patton, 2015; Pruitt &; Rubin, 1986) This tends to solve the problem collectively and benefits all parties, as

21

negotiators distribute added value by applying objective criteria (rather than bargaining, as

in distributive negotiations) (Fisher et al., 1981)

Integrative negotiation is arguably superior to distributed negotiation because it gradually results in a more efficient and permanent agreement, benefiting all parties (Brett

& Thompson, 2016) In other words, to achieve the best possible result or solution to a problem Problem solving is used to find a solution to a negotiation acceptable to all parties involved, and it requires identifying common interests and strategies to create shared value (Koning and van Dijk, 2013)

In the LVMH and Tiffany deal, both parties showed respect for each other's interests and were flexible in reducing their own Tiffany initially offered a high price because they thought their brand was worth more, whereas LVMH offered a low price Through integrative negotiation, both partners agreed on a common price of $15.8 billion Tiffany seems to accept discounts to protect brand value, while LVMH achieves its goal of reducing prices paid With the application of integrative negotiation in this deal, the two sides come

up with a plan to maximize the benefits of both sides and reduce conflicts in the negotiation process

By applying integrative negotiation to negotiations, Tiffany & Co and LVMH were able

to jointly achieve concrete benefits for this deal Both businesses agreed to the final price because

at that price both Tiffany & Co brand value can be guaranteed and LVMH can buy it back at a reasonable price It can be seen that integrative negotiations have brought many benefits to participating parties Both Tiffany & Co and LVMH were both able to walk away from the negotiations feeling like they had achieved something of value, leaving them feeling more satisfied and motivated Furthermore, this also helps both businesses maintain a strong relationship and expand values and achieve more achievements in the future Overall, integrative negotiations tend

to result in higher levels of satisfaction for all parties involved

Integrative negotiation is a collaborative negotiation strategy in which the parties seek a win-win solution to resolve conflicts This negotiation is a tactic, a collaborative approach where stakeholders collaborate to find solutions that address their respective needs and concerns and maximize their mutual interests This process often combines group brainstorming and the individual's creative thinking

22