LVMH said it was no longer possible for it to complete the $16.6bn takeover of US jeweller Tiffany after the French government ordered the world’s largest luxury group to delay the closing past a key deadline because of transatlantic trade tensions.
Tiffany hit back by suing the company controlled by French billionaire Bernard Arnault. It filed a lawsuit on Wednesday alleging that LVMH has used multiple tactics, such as delaying antitrust filings, to purposefully delay the deal’s completion and run out the clock on the merger agreement.
The moves cap months of manoeuvring by Mr Arnault, dubbed “the wolf in cashmere” for his hardball dealmaking tactics, with the aim of renegotiating the terms of the $135-a-share deal agreed last November to reflect the fallout from the Covid-19 pandemic.
The largest-ever deal in the luxury sector has become the most high-profile example of how transactions agreed before the pandemic have soured because of a radically different business outlook.
The stage is now set for a bitter legal battle that will leave judges in the US state of Delaware with the task of deciding which side prevails and if the deal completes.
The latest skirmish began on Tuesday when LVMH’s legal team disclosed to Tiffany a letter dated August 31 that it said it had received from the French Ministry for Europe and Foreign Affairs. The letter, signed by minister Jean-Yves Le Drian, recommended that LVMH delay the closing of the Tiffany acquisition until January 6 because of an ongoing trade war with the US.
The 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.
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.”
Jean Jacques Guiony, LVMH’s chief financial officer, said on a conference call with reporters that the group consulted lawyers and decided that the French government letter was a “valid request” that it could not ignore. 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 as the US jeweller had earlier requested.
“The deal cannot take place,” said Mr Guiony on the call. “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 is as simple as that. We have no choice but to apply the terms of the letter we received from the French government.”
Tiffany shares fell 8.4 per cent to $111.67 by mid-day on Wednesday in New York trading.
The US jeweller does not intend to walk away from the deal without a fight, and on Wednesday filed a lawsuit with the Delaware Court of Chancery to force LVMH to close the transaction by November 24.
Tiffany said in the lawsuit: “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 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.
Roger Farah, Tiffany’s chairman, 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.”
The acrimony is 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-a-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.
A French government spokesman said Mr Le Drian would make a statement on the LVMH letter later on Wednesday. “In the context of very important international negotiations with our partners, the French government will not be naive, nor passive,” the spokesman said. “We have goals we want to achieve, and there are negotiations now ongoing with partners such as the United States.”