October 26, 2020

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Tiffany to sue LVMH over delayed $16bn takeover

4 min read

Tiffany is taking legal action against LVMH, claiming the French luxury conglomerate has deliberately stalled the process of securing antitrust approvals for its $16bn takeover of the US jeweller and used other delaying tactics to force it to renegotiate the deal.

In the most high-profile example of how deals agreed before the coronavirus pandemic have soured, Tiffany will file a lawsuit with the Delaware Court of Chancery on Wednesday seeking to force LVMH to close the transaction by the November 24 deadline, according to people close to the matter. 

Tiffany alleges that LVMH has delayed the EU regulatory process to avoid closing before a mandated deadline, and threatened to walk away from the takeover unless the price tag is reduced, people briefed about the matter said. 

Competition watchdogs in China and the US have already cleared what would be the largest-ever takeover in the luxury sector, but LVMH has yet to file for regulatory approval in three required jurisdictions, including the EU, the people said. When the deal was agreed in November 2019, LVMH said it did not expect any trouble obtaining the approval of EU regulators.

In late July the world’s largest luxury group by revenues said on an investor call that antitrust filings remained under way in about half a dozen countries. It said it was “responding expeditiously” to regulators’ questions, despite the Covid-19 crisis slowing down the process. 

LVMH told Tiffany on Tuesday that it received a letter from the French government about a week earlier. The letter asked it to delay closing the deal until January 6 next year in an effort to dissuade the Trump administration from imposing tariffs on goods from France, according to the people briefed on the matter.

Tiffany’s lawsuit will claim LVMH breached its transaction agreement by failing to inform the US company immediately after it received that letter, the people said. 

Such a request has not been made public by the French government, nor has any other company in the EU’s second-largest economy been openly asked to take similar measures. 

The lawsuit marks the latest twist in the struggle between Bernard Arnault, head of LVMH and Europe’s richest man, and Tiffany to renegotiate the deal.

LVMH had long coveted the US jeweller founded by Charles Lewis Tiffany in 1837, and before the pandemic agreed to pay $135 a share for what Mr Arnault later referred to as an “American icon”. 

However, that was before Covid-19 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 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. Tiffany shares closed at $121.81 on Tuesday, and have fallen nearly 9 per cent this year.

Mr Arnault, dubbed “the wolf in cashmere” for his hardball and hostile dealmaking tactics, has not spoken publicly about whether he is seeking to renegotiate the acquisition. 

In June, LVMH said it did not plan to buy Tiffany shares in the open market, ruling out one of the only options available to lower the agreed price. This followed reports it had discussed reopening negotiations at a board meeting.

People close to Tiffany have claimed details of that meeting, during which the LVMH board allegedly tried to come up with ways to use the pandemic and protests in the US to reduce the price, were leaked to the press by the European luxury group. 

In response to questions from analysts and journalists about whether it was seeking to renegotiate the deal, LVMH said repeatedly in April, June, and July that it would respect the merger agreement it had signed with Tiffany.

In mid-August, when Tiffany extended the deal’s closing date to November 24, LVMH countered that it still had the right to terminate the deal using a so-called material adverse effect clause, which allows buyers to walk away if a target company experiences a sharp drop in revenue and profit. 

Tiffany has said its business performance is in line with that of sector peers and it is well positioned to continue growing. It has rejected any attempt to scuttle the deal. 

LVMH did not respond to a request for comment on Tiffany’s lawsuit. It put out a separate statement on Wednesday saying that its board had met to discuss the deal given “recent developments”, including the letter sent by the French government requesting that LVMH delay the transaction’s closing. 

“Given these elements and the initial legal analysis prepared by the board and LVMH, the board has decided to respect the terms in the merger agreement signed in November 2019 that lays out a deadline for the deal to close by November 24, 2020. As a result, LVMH will not be able to complete the acquisition of Tiffany & Co.”

2020-09-09 06:07:57

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