LVMH pulls out of US$16 billion takeover deal with Tiffany & Co

Tiffany & Co isn’t backing down from a fight with LVMH.

Photo: Tiffany & Co

Trade tensions between Paris and Washington are boiling over, as the world’s largest luxury conglomerate, LVMH has decided to pull out of a US$16 billion takeover deal with renowned US jewellery Tiffany & Co. The decision was made after the French government urged the former to delay completion.

Tiffany retaliated with a lawsuit against the luxury company, with allegations that LVMH employed tactics, including delaying antitrust filings in order to delay the deal’s completion – commenting that it was a sign of “unclean hands” at LVMH.

The attempted withdrawal by LVMH ends months of manoeuvring by the chairman and chief executive of LVMH, French billionaire Bernard Arnault, who is known for his uncompromising dealmaking tactics. He had been looking to renegotiate the terms of the US$135-a-share deal agreed in November 2019, when he promised to bring more interest to Tiffany & Co, which had been seeing a decline in younger buyers. However, the impact of the COVID-19 pandemic which rocked the demand for luxury goods brought a massive 36% drop in Tiffany sales in the first half of 2020 prompted doubt over the deal. A slow recovery to make up for the sales drop is expected to take up to three years.

On Tuesday, the conglomerate’s legal team told Tiffany that the French foreign minister, Jean-Yves Le Drian, had written to LVMH asking it to delay the closing of the acquisition until January 6, in order to “support the steps taken vis-à-vis the American government.” This letter referred to a move by US president Donald Trump to implement customs duties by that date on certain French industries, including luxury goods, in reaction to France adopting a digital services tax.

Some of the world’s most renowned luxury brands such as Louis Vuitton are housed under the LVMH group. (Photo: Louis Vuitton)

“I am sure that you will understand the need to take part in our country’s efforts to defend its national interests,” Mr Le Drian wrote in the letter.

The chief financial officer of LVMH, Jean-Jacques Guiony said in a conference call that after consulting lawyers, the group decided that the French government letter was a “valid request” and could not be ignored. In the end, LVMH was unable to meet the November 24 deadline to close the merger agreement with Tiffany – nor did it want to extend the deadline as the jeweller had requested.

“The deal cannot take place,” said Mr Guiony. “We are prohibited from closing the transaction and we do not want to lengthen the lock-stop date so the deal cannot happen. It’s as simple as that.”

As a result, Tiffany & Co filed a lawsuit on Wednesday with the Delware court of Chancery in an effort to force the luxury group to close the deal by November 24.

“LVMH’s recent actions shed light on the true motives behind LVMH’s contrived delays and missed deadlines,” said Tiffany in the lawsuit. “It is now unmistakably clear that LVMH has been running out the clock for the last five months in an effort to get to the initial August 24, 2020 ‘drop-dead’ date…[as] part of an entirely improper effort to strong-arm Tiffany into agreeing to reduce the merger price.”

The lawsuit also claimed the group had breached its transaction agreement by failing to inform Tiffany immediately after it received the French government’s letter.

“We regret having to take this action but LVMH has left us no choice but to commence litigation to protect our company and our shareholders,” said Roger Farah, the chairman of Tiffany & Co.

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