LVMH’s blockbuster $16.6bn takeover of Tiffany thrown into doubt

LVMH's planned $16.6 billion (€14 billion) takeover of US jeweller Tiffany was thrown into jeopardy on Wednesday after the French conglomerate said the deal could not be completed and Tiffany hit back with a lawsuit aimed at forcing it to respect their original agreement.

The largest-ever deal in the luxury sector has become the most high-profile example of how transactions agreed before the coronavirus pandemic have soured amid a radically different business outlook.

Over the past several months, LVMH chairman and chief executive Bernard Arnault has sought ways to compel the Tiffany board to renegotiate the terms of the $135-per-share deal that was agreed between the groups in November.

The latest skirmish began on Tuesday when LVMH’s legal team disclosed to Tiffany a letter that it said it had received from the French government. The letter, from the French Ministry of Europe and Foreign Affairs and dated August 31st, requested that it delayed the closing of the Tiffany acquisition because of an ongoing trade war with the US.

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The letter referred to a move by the US to implement customs duties on certain French industries by January 6th, including luxury goods, in reaction to France adopting a digital services tax. The ministry’s letter called on LVMH’s patriotic duties to counter the US push: “I am sure that you will understand the need to take part in our country’s efforts to defend its national interests.”

LVMH said in a statement on Wednesday that it intended to comply with the merger agreement with Tiffany, which called for completion of the deal by November 24th. Given the request from the French government and the “initial legal analysis prepared by the board and LVMH”, the company said “as it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co.”

Tiffany responded by launching legal action against LVMH, claiming the French luxury conglomerate deliberately stalled the process of securing antitrust approvals and used other delaying tactics to force it to renegotiate the deal. On Wednesday Tiffany filed a lawsuit with the Delaware Court of Chancery seeking to force LVMH to close the transaction by November 24th.

Tiffany’s lawsuit also claimed that LVMH breached its transaction agreement by failing to inform the US company immediately after it received the French government’s letter.

In its lawsuit, Tiffany said: “LVMH’s recent actions shed light on the true motives behind LVMH’s contrived delays and missed deadlines. 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.”

Tiffany's chairman Roger Farah said: "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."

Shares in Tiffany fell 8.7 per cent on Wednesday in pre-market US trading, to $111.

Merger arbitrage hedge funds betting on the deal believe that Tiffany has a strong legal case to pursue, according to analysts.

The stage is now set for an acrimonious legal battle. It is a far cry from last year when Mr Arnault lauded the US jeweller founded by Charles Lewis Tiffany in 1837 as an "American icon" that would fit perfectly within LVMH's portfolio of brands.

However, that was before the coronavirus emergency decimated demand globally for luxury goods: analysts predict a 20 per cent to 35 per cent drop in sales this year and a slow recovery that could take three years.

LVMH’s $135-per-share offer late last year represented a 37 per cent premium to the New York-listed Tiffany’s undisturbed share price at the time, which now looks expensive given luxury’s darker outlook. Tiffany shares closed at $121.81 on Tuesday.

Mr Arnault, dubbed “the wolf in cashmere” for his hardball and hostile dealmaking tactics, has not spoken publicly about Tiffany in months, leaving it to lieutenants to answer questions on the process.

LVMH’s shares declined 1 per cent in afternoon trading. – Copyright The Financial Times Limited 2020