French luxury goods behemoth LVMH Moet Hennessy Louis Vuitton SA has backed out of a $16.2 billion deal to acquire iconic U.S.-based jeweler Tiffany & Co. (TIF).
LVMH cited, among other things, that in light of the threat of heavy additional tariffs upon French goods by the U.S., France’s Ministry of Europe and Foreign Affairs recommended in a letter that LVMH delay its proposed acquisition of Tiffany until after January 2021.
Tiffany itself had also asked LVMH to postpone the closing of the merger to Dec. 31 of this year.
However, under terms of the merger agreement signed by LVMH and Tiffany in November 2019, the closing cannot be extended beyond Nov. 24, 2020. LVMH said its board has decided to adhere to the conditions of that agreement.
“As it stands, the LVMH Group would therefore not be able to complete the transaction to acquire Tiffany & Co.,” the company concluded.
In response, on Wednesday Tiffany filed a lawsuit against LVMH to enforce the merger agreement.
In the suit, filed in the Court of Chancery in Delaware, Tiffany seeks to compel LVMH to abide by its contractual obligation under terms of the November 2019 merger agreement.
Tiffany suspects that LVMH is stalling on the deal because it wants to renegotiate terms in the wake of the COVID-19 pandemic, which has decimated demand for luxury goods, the Financial Times reported.
Tiffany cited that LVMH has breached its obligations by failing to secure all required regulatory clearances as quickly as possible. Tiffany also said that under the deal, LVMH had “assumed all antitrust-clearance risk and all financial risk related to adverse industry trends or economic conditions” (i.e., the decline in the global luxury goods trade due to the pandemic).
“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 Roger N. Farah, Tiffany’s chairman. “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.”
Referring to the letter by the French Foreign Ministry, Farah added: “We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms. But the simple facts are that there is no basis under French law for the Foreign Affairs Minister to order a company to breach a valid and binding agreement, and LVMH’s unilateral discussions with the French government without notifying or consulting with Tiffany and its counsel were a further breach of LVMH’s obligations. … Moreover, this supposed official French effort to retaliate against the U.S. for proposed new tariffs has never been announced or discussed publicly; how could it possibly then be an effort to pressure the U.S. into revoking the tariffs?”
Tiffany Chief Executive Officer Alessandro Bogliolo declared that the company is now on sound financial footing.
“The fundamental strength of Tiffany’s business is clear,” he said. “The company has already returned to profitability after just one quarter of losses, and we expect our earnings in the fourth quarter of 2020 will actually exceed the same period in 2019.”
In pre-market trading, Tiffany shares have plunged about 9.5% as of 8:20 a.m. EDT.