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French conglomerate LVMH, already one of the largest luxury companies in the world, wants to add Tiffany & Co. to its roster of brands.

LVMH, whose portfolio includes names like Christian Dior, Fendi, and of course Louis Vuitton, confirmed on Monday morning that it had made a bid for $120 a share. Tiffany also confirmed the bid and said it was not in discussions with LVMH but that its board was reviewing the offer.

The takeover offer sent Tiffany’s stock soaring 32% to $130 in pre-market trading, indicating that Wall Street is taking the bid seriously but expects LVMH to raise it.

Cowen & Co analyst Oliver Chen said in a research note that investors should expect LVMH to pony up a lot more because Tiffany “has many characteristics that are difficult to replicate and represent competitive advantages,” such as its diamond polishing facilities, long-term relationships with diamond mines, strength in engagement jewelry, and long-term growth potential in China.

Yet the bid comes as Tiffany—iconic for its robin egg blue boxes, Tiffany keys, and Fifth Avenue flagship in Manhattan—is struggling with declining business from Chinese tourists (particularly in the U.S. where it gets 41% of revenue), and in Europe, and a challenge to update its business. The headwinds have been blunted somewhat by growth in mainland China.

In the first half of the current fiscal year, Tiffany’s worldwide net sales fell 3% to $2.1 billion while comparable sales, which exclude the impact of new or recently closed stores, declined 4%.

While Tiffany is firmly ensconced in American culture thanks to the Truman Capote book Breakfast at Tiffany’s and the Audrey Hepburn film based on it, the jeweler has long struggled in walking the fine line between its luxury aura—from selling $138,000 necklaces—and the fact that some 30% of revenue comes from relatively inexpensive silver items, which has given it something of a mass product image.

Tiffany could benefit from the resources of the much larger company, whose revenue excluding acquisitions is up 11%, outpacing the overall luxury market. That suggests LVMH is winning market share.

New York-based Tiffany has struggled to get shoppers excited in recent years by some new initiatives, such as its relaunch of men’s luxury watches. Tiffany was also slow to embrace e-commerce, though it has sought to address that with partnerships such as the one it has with Farfetch.

In 2017, Tiffany’s soft performance landed it in the crosshairs of an activist investor, which led to the replacement of a CEO after only 22 hours by current chief Alessandro Bogliolo. His mandate has been to modernize the now 182 year-old company and get it to introduce new products more quickly.

Much of Tiffany’s revenue still comes from decades-old collections by Elsa Peretti (which alone generates about 9% of sales) and Paloma Picasso. Its best-selling collection remains its classic namesake engagement ring with a six-prong setting, introduced in 1886. But Tiffany’s metabolism has sped up: Last year, it launched Tiffany True, its first new engagement collection in a decade.

And Tiffany has had some success in updating its image, thanks in part to the efforts of creative artistic director, Reed Krakoff, who had been a key architect in turning Coach into a multi-billion dollar brand. One effort that added some whimsy to Tiffany has been his “Everyday Objects” collection with items such as $1,025 sterling silver tin can and a $9,000 sterling ball of yarn.

What’s more, Tiffany last year transformed the fourth floor of its 10-floor New York flagship, which is undergoing a $250 million renovation and generates almost 10% of company sales, into a popular restaurant.

As for LVMH, its current jewelry portfolio includes Tag Heuer, Bulgari, and Hublot, all higher end than Tiffany. Last year, the division brought in 4.1 billion Euros ($4.5 billion at current rates). That is a hair more than Tiffany‘s sales in 2018, meaning a Tiffany acquisition would double LVMH’s watches and jewelry business and give it more exposure to the so-called accessible luxury market. It would also instantly help LVMH better compete with Swiss luxury group Richemont, whose focus is largely on watches and jewelry.

LVMH Makes $14.5 Billion Bid for Tiffany

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