By Carol Ryan 

It is understandable if Europe's richest man, Bernard Arnault, is feeling buyer's remorse over last year's $16.2 billion offer for Tiffany & Co. The pandemic has pushed out his prospects for getting value from the deal.

Tiffany's share price fell 9% just before Tuesday's close after fashion trade publication Women's Wear Daily said that French luxury company LVMH Moët Hennessy Louis Vuitton's takeover offer now looks "uncertain."

Investors were already concerned. In recent weeks, the spread between the offer price and where Tiffany's stock was trading indicated that shareholders were pricing in an 11% to 18% chance of the deal collapsing, based on data from hedge fund consultant Northstar Risk Corp. Yesterday, that spiked to 36%.

LVMH isn't commenting and the deal may still happen as negotiated. If it does, though, the company will struggle to make a good return for shareholders any time soon. A lower price would help keep the deal math on track.

Many of the trends that made Tiffany an attractive target late last year have turned for now. LVMH planned to grow the jeweler's footprint in Europe, where it has fewer than 50 boutiques. The French group's clout with landlords could help Tiffany land prime locations in cities like Paris and Milan, thereby capturing more spending by Chinese tourists.

But overseas visitors, who typically generate half of all luxury sales in Europe, are now gone. Aversion to long-haul travel could depress revenue in the region's upscale stores for years.

LVMH also wanted higher exposure to the U.S. luxury market and was confident that it could increase the jeweler's relatively low sales densities there. This still makes sense, but the Tiffany turnaround is likely to need longer now that the IMF expects the U.S. economy to shrink by 5.9% this year.

Mr. Arnault is good at playing a long game. After buying Italian jeweler Bulgari at huge cost in 2011 -- a clear precedent for Tiffany -- it took almost a decade to double sales and triple operating margins. Even before the pandemic, LVMH's big U.S. deal wasn't expected to make a return on investment above its weighted average cost of capital until 2025, according to estimates by RBC analysts at the time of the announcement.

The pandemic will lengthen the timeline for acceptable returns even further. Just how far is too far for Mr. Arnault? Investors may soon get a better idea.

Write to Carol Ryan at carol.ryan@wsj.com

(END) Dow Jones Newswires

June 03, 2020 09:22 ET (13:22 GMT)