LVMH and Tiffany: Luxury Giants at Odds

By Adriaan Brits Saturday, September 12, 2020

A few weeks after Apple and Epic Games went into a direct confrontation related to Apple's practices in the iOS App Store, it seems that the investing community will witness another multi-billion-dollar legal battle. 

LVMH Moët Hennessy Louis Vuitton, also known as LVMH, decided to pull out of its $16.2 billion acquisition deal with Tiffany & Co., the American jewelry giant, which would have been the largest-ever in this industry.

Tiffany Deal Gridlock

The Louis Vuitton owner said that according to the agreement signed in November 2019, the closing deadline for the deal was no later than November 24, 2020. However, Tiffany demanded to extend that date to December 31. Furthermore, Jean-Yves Le Drian, French Minister of Foreign Affairs, advised LVMH to extend the date even further until at least January 6, due to the US threat of taxes on French products. 

LVMH released a statement and said it would not be able to acquire the American jewelry company as things currently stand. The statement addressed the need for more time to see how US taxes will affect French goods, thus postponing the deal until further notice. 

In a call with the media, Jean Jacques Guiony, the CFO of LVMH, was asked whether his company had sought help from the French government to pull out of the deal.  

“Are you seriously suggesting that we procure the letter?” Guiony asked reporters. “It was fully unsolicited. It doesn’t mean that we didn’t do anything after we received it,” he added.

No Legal Basis

Tiffany immediately responded by filing a lawsuit in the Court of Chancery of the State of Delaware Against LVMH to enforce the deal. Accordingly, LVMH’s claims have no legal basis. 

“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 under the Merger Agreement,” Roger N. Farah, Chairman of the Board, said in a statement.

The US government had been threatening to impose tariffs on French luxury products in response to France’s taxes on US tech companies that have hurt major companies like Amazon, Facebook, and Google. 

The talks over tariffs have raised concerns in the deal market, and it’s still not clear how US tariffs will exactly affect the LVMH if they were to take effect at all. 

“Tariffs are political tools that can be flipped on and off with no notice,” said Scott Lincicome, a senior fellow at the US think tank Cato Institute. “And because we don’t know who the president is going to be in January 2021, that adds fuel to the uncertainty.”

The luxury retail industry took a big blow from the coronavirus pandemic, resulting in Tiffany's sales plummeting 44%, which raised uncertainty over the deal with LVMH. Investors voiced their concerns that LVMH would overpay the acquisition, and its Chief Executive, Bernard Arnault, was attempting to lower the price for purchasing Tiffany.  

During the crisis, both companies came to an agreement to extend the closing date from August 24 to November 24. Analysts believed the deal was going to be completed but at a lower price.  

The substantial slowdown in international tourism had hit Tiffany’s and other retailers hard as many companies hoped to grow sales relying on big Chinese spenders who visit their US stores. The jewelry business had been one of the fastest-developing industries in luxury until the pandemic. 

This is not the first deal between retailers that had been scrapped due to COVID-19. The biggest US mall owner Simon Property Group has terminated its deal to buy the high-end mall owner Taubman, prompting Taubman to file a counterclaim against Simon’s accusations. 

Similarly, the private equity firm, Sycamore, also backed out of its deal to take over Victoria’s Secret from L Brands. 

Summary

The $16.2 billion takeover deal between LVMH and Tiffany has fallen apart after the France-based luxury fashion giant pulled out of the deal. LVMH claims it needs more time to decide whether to complete the deal after receiving advice from the French government to consider potential tariffs that the US might impose on French goods.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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