LVMH drops US$16b Tiffany takeover, battle lines drawn

Daniel Fowler
September 12, 2020

The suit accuses the conglomerate of deploying "baseless, opportunistic attempts to use the US social justice protests and the COVID-19 pandemic to avoid paying the agreed price for Tiffany shares", which would suggest Tiffany believes LVMH is using the French government's request for a delay as a cover for its true motivations for backing out of the deal-the financial risks of taking on Tiffany in the middle of a global pandemic.

"This latest development represents nothing more than LVMH's most recent effort to avoid its obligation to complete the transaction on the agreed terms, not dissimilar from LVMH's baseless, opportunistic attempts to use the U.S. social justice protests and the Covid-19 pandemic to avoid paying the agreed price for Tiffany shares", the firm said.

LVMH said it received a letter dated August 31 from France's Ministry of Europe and Foreign Affairs informing it of a USA government threat to put additional taxes on French products, particularly luxury goods.

"Tiffany believes this latest development represents nothing more than LVMH's most recent effort to avoid its obligation to complete the transaction on the agreed terms, not dissimilar from LVMH's baseless, opportunistic attempts to use the USA social justice protests and the Covid-19 pandemic to avoid paying the agreed price for Tiffany shares", it said.

Tiffany shares were down about 9 percent in premarket trading in the US.

The company said in a statement that it had received a letter from the French government, directing it to defer the acquisition of Tiffany until after January 6, 2021.

In a statement, Tiffany said that LVMH told the company it will not extend the outside date under the merger agreement beyond November 24, 2020, "effectively stating that LVMH no longer intends to complete the transaction". Tiffany's worldwide sales fell 29 per cent to US$747.1 million in the three months ended July 31, missing expectations of US$772 million. Sources familiar with LVMH's plans said the company planned to file for European Union approval within days.

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The U.S. jeweler has filed a lawsuit in the Delaware Court of Chancery against LVMH that seeks, among other things, an order requiring the company to abide by "its contractual obligation under the merger agreement to complete the transaction on the agreed terms".

Tiffany also said the merger agreement required it to continue to pay dividends to its shareholders. The company said its board had made a decision to stick to the terms of the original merger agreement, which stated that the deal must be completed by Nov 24.

When it struck the deal, LVMH was betting it could restore the lustre of Tiffany by investing in spruced-up stores and new collections. Tiffany is asking the DE court to force LVMH to comply with its obligations to close the deal or pay damages.

LVMH is close to buying Tiffany for about $16.3 billion after sweetening its offer, sources said. The deal was set to be the biggest-ever in the global luxury industry. It will take until 2022 to 2023 for revenues to return to 2019 levels, according to consultancy Bain.

The agreement had looked in doubt since it emerged in June that LVMH boss Bernard Arnault, a shrewd dealmaker who has built a luxury empire through acquisitions, was exploring ways to reopen price negotiations with Tiffany because of the COVID-19 pandemic, according to sources with knowledge of the matter.

In the retail sector, L Brands Inc agreed to let private equity firm Sycamore Partners walk away from the US$525 million acquisition of a majority stake in its Victoria's Secret lingerie business, while United States mall owners Simon Property Group Inc and Taubman Centers Inc are battling it out in a DE court over the former's decision to walk away from the US$3.6 billion acquisition of the latter.

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