Tiffany & Co (TIF.N) on Tuesday struck a surprise deal with JANA Partners, an activist investor and now a shareholder, agreeing to add three directors to its board as the luxury retailer tries to entice younger shoppers and revive struggling sales.
The deal with JANA jolted the company's stock and came before the market was even aware the hedge fund was a shareholder. JANA owns around 5 percent of the stock, according to a person familiar with the matter.
Jana's precise plan for the company is not yet clear, though some analysts surmised that the $6-billion hedge fund may view Tiffany as a potential takeover candidate.
Tiffany, whose jewelry is a status symbol and popular among A-list celebrities and politicians, said on Feb. 5 that CEO Frederic Cumenal was stepping down amid disappointing results. Chairman and previous CEO Michael Kowalski was named interim chief executive while the company searched for someone to fill the role.
As part of the deal with JANA, the three new board seats will go to Francesco Trapani, the ex-CEO of luxury retailer Bulgari; Roger Farah, co-chief executive of luxury brand Tory Burch; and James Lillie, a former CEO of consumer products company Jarden Corp.
Trapani and Lillie both have a history of dealmaking.
Newell Brands Inc (NWL.N) bought Jarden, the maker of Yankee Candle and Crock-Pot cookware, in April 2016 when Lillie was CEO.
Trapani, who will be part of Tiffany's CEO search committee, was the CEO of Bulgari when LVMH agreed to buy the company for $5 billion.
"With the company now looking for a new CEO and today’s news in mind, we think (Tiffany’s) strategic prospects have improved," said Don Bilson, head of research at event-driven research firm Gordon Haskett. Bilson said Tiffany could be a takeover target for European luxury retailers such as Richemont (CFR.S), Kering SA (PRTP.PA) or LVMH (LVMH.PA).
Shares of Tiffany closed up 2.6 percent at $88.41, reaching its highest level since August 2015.
JANA is not the first activist in Tiffany's stock. Trian Partners sold out of most of its position in 2012 and fully exited the stock last year. Trian co-founding partner Peter May remains on the company's board.
Tiffany said in January its sales during the November-December holiday period were "somewhat lower" than it had expected, hurt by lower consumer spending and a drop in sales at its flagship store in New York.
Tiffany's jewelry remains coveted by well-to-do baby boomers who made the brand synonymous with weddings and anniversaries, but it's struggling to attract younger shoppers.
The New York-based retailer, with a market value of $11.1 billion, signed on pop star Lady Gaga to appear in an advertisement during the Super Bowl earlier this month - the same event where she was the featured singer at the U.S. football extravaganza's halftime show.
Last month, Tiffany said it appointed Coach (COH.N) creative director Reed Krakoff as Chief Artistic Officer, a newly created position.
Still, the moves to kick-start sales and seek a new chief executive were not enough to keep JANA from pouncing on the stock.
JANA's quarterly filing, disclosed last week, had showed no sign of Tiffany shares as of Dec. 31, meaning the market was not even aware that JANA was an investor until Tuesday's announcement, which said JANA and Trapani own 5.1 percent of the company. JANA owns the majority of that position, a person familiar with the matter said.
Tiffany's board will increase to 13 seats from ten.
The deadline for Tiffany shareholders to nominate directors for its board at the annual meeting is Feb. 25.
(Additional reporting by Siddharth Cavale in Bengaluru; Editing by W Simon, Nick Zieminski and Bernard Orr)