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LVMH has withdrawn from its $US16.2 billion acquisition of Tiffany & Co., with the US company initiating legal proceedings in response.
LVMH has withdrawn from its $US16.2 billion acquisition of Tiffany & Co., with the US company initiating legal proceedings in response.

LVMH and Tiffany & Co. deal collapses; court battle looms

Tiffany & Co. has begun legal proceedings against Moët Hennessy Louis Vuitton SE (LVMH) following the French luxury conglomerate’s withdrawal from its $US16.2 billion acquisition deal.

In a statement dated 9 September 2020, LVMH management stated it would not proceed with the takeover – which was to be the most expensive in its history, surpassing the $US13 billion acquisition of Christian Dior in 2011 – in part due to a taxation dispute between the US and French governments.

Roger N Farah, chairman Tiffany & Co. board
Roger N Farah, chairman Tiffany & Co. board
"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. Tiffany is confident it has complied with all of its obligations"
Roger N Farah, Tiffany & Co.

Jean-Yves Le Drian, French European and Foreign Affairs Minister, reportedly wrote to LVMH on 31 August requesting that it delay the final closing date of the Tiffany deal until after 6 January 2021 – in breach of the original Merger Agreement, which stipulates a closing date of no later than 24 November 2020 – in order to “dissuade” US authorities from imposing further import duties on French luxury goods.

» View full history of the LVMH and Tiffany & Co merger

In addition, the LVMH statement notes that Tiffany & Co. separately requested a further extension of the final closing date to 31 December 2020.

“As it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co.,” the statement concluded.

» Read the LVMH press release

LVMH did not address the impact of the COVID-19 pandemic on Tiffany & Co.’s financial position; the company recorded a loss of $US33 million for the first half of the year, but made a $US32 million profit for the three months to 31 July, compared with $US136 million for the same period in 2019.

However, in a filing with the US Securities Exchange Commission (SEC) also dated 9 September 2020, Tiffany & Co. claimed LVMH had sought to withdraw from the deal as Tiffany had suffered “material adverse effect” and “should not have paid its regular quarterly dividends in 2020”.

Material adverse effect is known as material adverse change under Australian law, and refers to specific matters that have a “measurable financial impact above an agreed threshold, such as a negative impact on earnings”, according to law firm MinterEllison.

A material adverse change clause usually excludes negative impacts resulting from general economic or industry conditions.

In its SEC filing, Tiffany & Co. refuted the claim that it had suffered material adverse effect as described under the terms of the LVMH deal, and that “the schedules to the Merger Agreement not only permitted, but required, [Tiffany & Co.] to pay its regular quarterly dividends in 2020”.

» Read the Tiffany & Co. SEC filing 

Furthermore, a statement from Tiffany & Co. management, also dated 9 September 2020, claimed that LVMH had “assumed all financial risk related to adverse industry trends or economic conditions” as part of the Merger Agreement.

The company alleged that LVMH had itself breached the terms of the deal by failing to apply for several international regulatory clearances, including in the European Union.

» Read the Tiffany & Co. statement 

Explaining the legal action, Roger N Farah, chairman Tiffany & Co. 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. 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.”

He added, “We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms... 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.”

“We are not aware of any other French company receiving such a request, [therefore] it is all the more clear that LVMH has unclean hands.”

Reports that the deal was in trouble first surfaced in early June, when the LVMH board met in Paris to discuss its progress. However, as recently as 30 June, Antonio Belloni, group managing director LVMH, said, “We believe that Tiffany is one of the most iconic jewellery brands. As such, it fully has its place in the LVMH portfolio.”

At the time of publication, LVMH had not filed a response to the Tiffany & Co. lawsuit.

 

More reading:
UPDATED TIMELINE: Inside the Tiffany & Co. and LVMH merger
Tiffany & Co. reports 37 per cent decline in sales; optimistic for China-led recovery
LVMH reiterates commitment to Tiffany & Co. takeover as revenues decline
 











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