LVMH’s $16 billion takeover of Tiffany erupts into a war

LVMH Tiffany

The largest company purchase in the luxury sector – the US$16 billion purchase by the luxury goods conglomerate LVMH of the US high-end jeweller Tiffany – has erupted in a war between the two companies.

LVMH CEO Bernard Arnault, the 71-year-old billionaire, is widely known as the “wolf of cashmere” for his hard-ball deals.

LVMH’s legal team told Tiffany on Tuesday that France’s Foreign Affairs Minister Jean-Yves Le Drian had written to the Paris-based luxury company asking it to delay completing the deal until January 6 to “support the steps taken vis-à-vis the American government”, which was referring to US President Donald Trump implementing customs duties by that date on certain French industries, including luxury goods, in retaliation for France adopting a digital services tax.

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

Jean-Jacques Guiony, LVMH’s Chief Financial Officer, said that the group had decided that the French government’s letter was a “valid request” and could not be ignored. As a result, LVMH could not meet the November 24 deadline to complete the merger as laid out in the agreement with Tiffany — but nor did it want to extend the deadline to December 31 as Tiffany had earlier requested.

“The deal cannot take place,” said 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.”

Tiffany’s response was immediate, filing a lawsuit against LVMH to try and get LVMH to honour the purchase agreement.

“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 Tiffany Chairman Roger Farah.

“Tiffany is confident it has complied with all of its obligations under the merger agreement and is committed to completing the transaction on the terms agreed to last year. Tiffany expects the same of LVMH.”

Tiffany also accused LVMH of failing in obligations to secure regulatory approval for the deal in Europe or Taiwan.

It also refuted LVMH’s claims that Tiffany had breached the merger agreement or suffered a major setback from the coronavirus pandemic or Black Lives Matter protests, adding that LVMH is not required to follow Guiony’s direction.

The fall-out between LVMH and Tiffany is the most high-profile example of how transactions agreed before the coronavirus pandemic have soured because of a rapidly deteriorating business outlook, the Financial Times reported.

Arnault last year in announcing the deal praised the jeweller, founded by Charles Lewis Tiffany in 1837, as an “American icon” that fitted perfectly within LVMH’s brands which include Dom Pérignon champagne, Christian Dior fashion, Givenchy perfumes, Bulgari watches, Sephora retail and the luxury Princess Yachts.

Luxury goods have suffered badly in the coronavirus pandemic, with analysts predicting a 20% to 35% drop in sales this year and a recovery may take three years.

LVMH offered Tiffany investors US$135-a-share offer late last year, which was a 37% premium to Tiffany’s share price at the time, which now looks expensive given the luxury sector’s outlook.

The legal battle has been lodged in the US state of Delaware.

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