By Matthew Dalton and Suzanne Kapner
PARIS -- Luxury-goods giant LVMH Moët Hennessy Louis Vuitton SE
said Wednesday it was backing out of its $16.2 billion takeover of
Tiffany & Co., in a sign of how trade tensions and the
coronavirus pandemic have taken the air out of the highflying
LVMH said it no longer wanted to buy Tiffany because the deal
was being dragged into the middle of trade disputes between France
and the Trump administration. The conglomerate said it had received
a letter from the French foreign ministry asking it to delay the
acquisition until after Jan. 6, 2021, more than a month after the
closing deadline stipulated in the merger agreement.
LVMH said the French government was seeking the delay in
response to tariffs Washington has threatened to impose on French
On Wednesday, Tiffany said LVMH was using the letter from the
French government as a pretext to back out of a deal that had lost
much of its luster since the pandemic changed the economics of the
luxury industry. The U.S. jeweler said it has filed a lawsuit in
Delaware Chancery Court to enforce the agreement. The entity
created to execute the deal is in Delaware.
"We believe that LVMH will seek to use any available means in an
attempt to avoid closing the transaction on the agreed terms,"
Tiffany Chairman Roger Farah said. "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."
The deal's unraveling shows how the coronavirus pandemic is
reshaping the luxury industry. Brands have long relied on
big-spending tourists from China, the U.S. and elsewhere to splurge
on handbags and other goods while visiting Paris, Milan, New York
and other destinations. That business model is under threat as
countries maintain travel restrictions and as perennial travelers
shy away from overseas trips.
LVMH's account of the French government's intervention is also a
measure of how companies that once remained above the geopolitical
fray are becoming chess pieces in trade disputes. France has been
at the forefront of countries, including the U.K., Italy and Spain,
that are pursuing plans to tax digital companies, such as Alphabet
Inc. and Facebook Inc. The U.S. in turn has threatened to impose
retaliatory tariffs on any country that implements such a tax,
including tariffs on luxury goods. Luxury goods have been targeted
by Washington as part of the long-running U.S.-EU dispute over
subsidies for Boeing Co. and Airbus SE.
Jean-Jacques Guiony, LVMH's chief financial officer, said it
considered the French government's demand a valid, legally binding
order. "We have no other choice but to apply this decision," he
A French diplomatic official disputed that, saying such a letter
from the French government wouldn't be binding on a company.
"In the context of very important international negotiations,
the French government is neither naive nor passive when there are
objectives we hope to achieve," Gabriel Attal, spokesman for the
government of President Emmanuel Macron, said when asked about the
Tiffany is asking the Delaware court to either force LVMH to
complete the merger or award Tiffany damages that would be
determined during a trial. The agreement allows Tiffany to pay a
termination fee of $575 million to walk away from the deal, but
LVMH doesn't have the option of paying to back out under the
The plan to acquire the American jeweler was the biggest
acquisition ever attempted by Bernard Arnault, chief executive and
controlling shareholder of LVMH. Completed shortly before the
coronavirus pandemic threw the luxury goods market into turmoil,
the deal was part of Mr. Arnault's ambition to expand LVMH's
jewelry business, which was one of the fastest-growing sectors in
An acquisition of Tiffany would have also marked a large
expansion of LVMH's presence in the U.S. luxury market, which was
growing strongly before the pandemic hit. Not only has the pandemic
hit the U.S. harder than many other countries, American cities have
been roiled by protests and civil unrest following the death of
George Floyd in police custody. Rioters and looters have targeted
shopping corridors while peaceful protesters marched in the
After approaching Tiffany in October 2019 with an all-cash
takeover worth about $120 a share, LVMH paid close to Tiffany's
all-time-high share price to acquire the company in November 2019.
Tiffany's shares have fallen well below LVMH's $135 offer price
since the pandemic hit. Tiffany's stock was down about 6% in
Wednesday afternoon trading.
Over the summer, Bernard Arnault, chief executive and
controlling shareholder of LVMH, began reviewing whether to move
forward with the deal, according to a person familiar with the
matter. But analysts said the agreement signed between the two
companies appeared to give Mr. Arnault little leeway to back
In early August, Antonio Belloni, LVMH's managing director,
called Mr. Farah to discuss the possibility of walking away from
the deal due to a material adverse change in the jeweler's
business, according to another person familiar with the situation.
A person close to Mr. Belloni said he didn't discuss whether
Tiffany had experienced a material adverse change.
A material adverse clause is a standard part of merger
agreements a buyer can invoke to walk away from a deal if an event
occurs that harms the target before closing. They are rarely
enforced, but some buyers have tried to claim the coronavirus
pandemic qualifies as such an event. In the spring, private-equity
firm Sycamore Partners sought to cancel its purchase of a
controlling stake in Victoria's Secret from L Brands Inc. The two
sides traded lawsuits before agreeing to scrap the $525 million
Mr. Farah responded that the terms of the deal didn't allow for
LVMH to pull out for that reason, the person said. To help reassure
LVMH about Tiffany's prospects, the company provided LVMH with a
preview of its second-quarter results showing it returned to
profitability in the three months ended July 31 on improved sales,
the person said. For the quarter, Tiffany's sales fell 29% compared
with the same period a year ago. That is better than the 45%
year-over-year drop the company reported in the quarter ended April
Nevertheless, Mr. Guiony on Wednesday said LVMH was "not
entirely happy" about the way Tiffany was managed during the
pandemic -- particularly the decision not to cut the company's
dividend despite losing money during the crisis.
By the end of August, LVMH hadn't filed for regulatory approval
with the European Union. European regulators reached out to
Tiffany's lawyers, asking why it was taking so long, the person
said. Tiffany had already obtained regulatory approval from
antitrust authorities in the U.S. and China.
LVMH said it received the letter from the French foreign
ministry on Sept. 1. On Tuesday, Mr. Belloni called Mr. Farah to
inform him of the French government's letter, expressing concerns
about a trade war, according to Tiffany's lawsuit. Tiffany informed
the White House of the situation later that day, the person
familiar with the matter said.
"LVMH has made clear that its real goal is to attempt to
renegotiate the merger price to which the parties agreed last
November and, barring renegotiation, run out the clock," Tiffany
said in its court filing. But "that attempt is entirely improper,"
Tiffany said in the lawsuit.
Mr. Belloni didn't respond to a request for comment.
Mr. Guiony said LVMH didn't solicit the letter from the foreign
affairs ministry, though executives did have discussions with
Jean-Yves Le Drian, the French foreign minister, after receiving
it. "It came as a total surprise," Mr. Guiony said.
On Wednesday LVMH said Tiffany asked to extend the deadline for
the acquisition until Dec. 31 of this year, giving the two sides
more time to get regulatory approvals. A person close to Tiffany
said the jeweler never asked for a delay beyond the Nov. 24
In the six months ended July 31, Tiffany had revenue of $1.3
billion compared with $2.05 billion in the year ago period. It had
a net loss of $33 million compared with a profit of $262 million
last year. Tiffany has since reopened nearly all its stores and
said sales trends were improving in August.
On Wednesday, CEO Alessandro Bogliolo 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."
Write to Matthew Dalton at Matthew.Dalton@wsj.com and Suzanne
Kapner at Suzanne.Kapner@wsj.com
(END) Dow Jones Newswires
September 09, 2020 14:57 ET (18:57 GMT)
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