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LVMH’s planned $ 16.6 billion takeover of American jeweler Tiffany was put in jeopardy on Wednesday after the French conglomerate said the deal could not be completed and Tiffany fought back with a lawsuit to force it to honor its original agreement.
The largest deal in history in the luxury sector has become the most prominent example of how transactions agreed to before the coronavirus pandemic have soured amid a radically different business perspective.
In recent months, LVMH President and CEO Bernard Arnault has sought ways to force Tiffany’s board to renegotiate the terms of the $ 135-a-share deal that was agreed between the groups in November.
The latest skirmish began Tuesday when LVMH’s legal team disclosed to Tiffany a letter it said it had received from the French government. The letter, from the French Ministry of Europe and Foreign Affairs and dated August 31, requested that he delay the closing of the Tiffany acquisition due to an ongoing trade war with the United States.
The letter referred to a U.S. move to implement customs duties on certain French industries by January 6, including luxury goods, in reaction to France’s adoption of a tax on digital services. The ministry’s letter called on LVMH’s patriotic duties to counter America’s push: “I am sure you will understand the need to participate in our country’s efforts to defend its national interests.”
LVMH said in a statement Wednesday that it intended to honor the merger agreement with Tiffany, which required completion of the deal by November 24. Given the request of the French government and the “initial legal analysis prepared by the board and LVMH”. said the company “As is, the LVMH Group will not be able to complete the acquisition of Tiffany & Co.”
Tiffany responded by taking legal action against LVMH, alleging that the French luxury conglomerate deliberately stopped the process of obtaining antitrust approvals and used other delaying tactics to force it to renegotiate the deal. On Wednesday, Tiffany filed a lawsuit with the Delaware Chancery Court to force LVMH to close the transaction by November 24.
The Tiffany lawsuit also claimed that LVMH violated its settlement agreement by failing to inform the American company immediately after receiving the letter from the French government.
In its lawsuit, Tiffany said: “Recent actions by LVMH shed light on the true motives behind LVMH’s artificial delays and missed deadlines. It is now unequivocally clear that LVMH has been running out of time for the past five months in an effort to reach the initial “dead drop” date of August 24, 2020.. . [as] part of a totally inappropriate effort to force Tiffany to agree to lower the merger price. “
Tiffany’s Chairman Roger Farah said: “We are sorry to take this action, but LVMH has left us no choice but to initiate litigation to protect our company and our shareholders.”
Shares of Tiffany fell 8.7 percent Wednesday in pre-market trading in the United States to $ 111.
Merger arbitrage hedge funds backing the deal believe Tiffany has a strong legal case to pursue, according to analysts.
The stage is now set for a bitter legal battle. It’s a long way from last year, when Arnault praised the American jeweler founded by Charles Lewis Tiffany in 1837 as an “American icon” that would fit perfectly into LVMH’s portfolio of brands.
However, that was before the coronavirus emergency decimated global demand for luxury goods: Analysts predict a 20% to 35% drop in sales this year and a slow recovery that could take three years.
LVMH’s $ 135 a share offering at the end of last year represented a 37 percent premium over Tiffany’s unchanged stock price trading in New York at the time, which now looks expensive given the darker luxury outlook. . Tiffany shares closed at $ 121.81 on Tuesday.
Arnault, dubbed “the wolf in cashmere” for his harsh and hostile deal-making tactics, hasn’t spoken publicly about Tiffany in months, leaving lieutenants to answer questions about the process.
LVMH shares fell 1 percent in afternoon trading.
