By Matthew Dalton, Noemie Bisserbe and Suzanne Kapner
PARIS -- LVMH Moët Hennessy Louis Vuitton SE blamed Tiffany
& Co. for the unraveling of its $16.2 billion takeover, saying
the deal was no longer valid because the jeweler had been
mismanaged during the coronavirus pandemic.
The criticism of Tiffany expands on LVMH's initial rationale for
calling off its biggest acquisition ever. On Wednesday, LVMH said
it was abandoning the deal because of trade tensions between France
and the Trump administration. LVMH, owner of Louis Vuitton, Dior
and dozens of other luxury brands, said it received a letter from
France's foreign minister that LVMH considered a legally binding
order to delay the acquisition past the merger's completion
On Thursday, LVMH said Tiffany's first-half results and its
outlook for 2020 "are very disappointing, and significantly
inferior to those of comparable brands of the LVMH Group during
The company added, "LVMH will be therefore led to challenge the
handling of the crisis by Tiffany's management and its Board of
LVMH said the mismanagement of Tiffany during the crisis meant
the company had suffered a material adverse event, which under the
merger agreement would allow LVMH to walk away from the deal.
A material adverse clause is a standard part of merger
agreements that allows buyers to back out if an event occurs that
harms the target before closing. Delaware courts, which have
jurisdiction over the Tiffany acquisition, have only once before
allowed a company to back out of a deal by invoking such
A Tiffany spokesman declined to comment. On Wednesday, Tiffany
sued LVMH in a Delaware Chancery Court, saying the French luxury
goods giant was using the foreign minister's letter as a pretext to
get out of a deal that had been signed before the coronavirus
pandemic threw the luxury goods industry into turmoil.
LVMH's criticism of Tiffany came as officials in the French
government disputed part of LVMH's initial explanation for backing
out of the deal.
The letter from French Foreign Minister Jean-Yves Le Drian was
only a request and not binding on LVMH, a French diplomatic
official said. Mr. Le Drian sent the letter without coordinating
with France's finance and economy ministry, which is leading the
trade negotiations with the U.S., French officials said. The
completion of LVMH's acquisition is irrelevant to the trade talks
between the U.S. and France, one French official close to the
negotiations said, adding that the government should not play a
role in protecting LVMH's interests.
Tiffany released an English translation of Mr. Le Drian's letter
that it said LVMH had provided to the jeweler. The translated
letter, which was addressed to LVMH chairman and chief executive
Bernard Arnault, says France is planning "to take measures in order
to dissuade the American authorities" from placing tariffs on
luxury goods and other French products in early January. Earlier
this summer, the Trump administration threatened the tariffs in
retaliation for France's decision to levy a tax on digital giants
like Facebook Inc.
"In order to support the steps taken vis-a-vis the American
government, you should defer the closing of the pending Tiffany
transaction until January 6, 2021. I am sure that you will
understand the need to take part in our country's efforts to defend
its national interests," the letter concludes.
An adviser to LVMH said the translation was accurate. Mr. Le
Drian's office didn't respond to a request for comment.
LVMH faces long odds convincing a court in Delaware that Tiffany
has suffered a material adverse event. Delaware courts have only
once before held that such an event has happened. That was in 2018
in a deal involving a pharmaceutical company, Akorn Inc., that was
found to have committed extensive violations of U.S. safety
regulations at its plants after a German pharmaceutical company
agreed to buy it.
Tiffany has asked the court in Delaware either to enforce the
merger or award Tiffany damages.
U.S. lawyers who aren't involved in the case, said LVMH would
have a hard time arguing that Tiffany was mismanaged during the
"The Delaware courts have held that changes in business
circumstances don't constitute a material adverse change," said
James Rosener, a partner with the law firm Troutman Pepper. "Stuff
happens in business and as long as it's not permanent and
sustained, it doesn't constitute a material adverse change."
If Tiffany prevails in court, LVMH could face damages in excess
of the $575 million termination fee that Tiffany was allowed to pay
to walk away from the deal, Mr. Rosener said.
Private-equity firm Sycamore Partners sued Victoria's Secret
parent L Brands Inc. in April, arguing the retailer had violated
the terms of their merger agreement by closing the lingerie brand's
U.S. stores, furloughing most of its workers and skipping April
rent payments during the height of the pandemic. L Brands
countersued. The two parties eventually agreed to scrap the
On Thursday, LVMH cited as evidence of mismanagement Tiffany's
decision to pay its full dividend throughout the pandemic. For the
six months ending July 31, Tiffany's sales fell 37% and it lost
$32.7 million, though sales improved and it returned to
profitability in the second half of that period.
"While Tiffany's sales and profits have fallen, its performance
has held up reasonably well compared to other parts of the luxury
market," said Neil Saunders, a managing director with research firm
For the first half of LVMH's fiscal year, sales fell 38% at its
jewelry and watch business, which posted a $17 million euro
operating loss, or about $20 million, for the period. LVMH's
overall profit for the first half was $522 million, down sharply
but still buoyed by strong sales at Louis Vuitton, Dior and its
cognac brand Hennessy.
LVMH also said Thursday it plans to seek approval for the merger
from the European Commission, the European Union merger regulator,
despite insisting that the merger cannot happen. That move aims to
refute one of the arguments Tiffany made in its lawsuit: that LVMH
was dragging its feet in obtaining regulatory approvals as it
searched for ways to get out of the deal.
"The filing in Brussels will take place, as expected, in the
following days and this is simply the result of the planning fixed
by the European Commission, about which Tiffany is completely
aware," LVMH said. "It is legitimate to expect this authorization
will be obtained in October."
Write to Matthew Dalton at Matthew.Dalton@wsj.com, Noemie
Bisserbe at firstname.lastname@example.org and Suzanne Kapner at
(END) Dow Jones Newswires
September 10, 2020 15:26 ET (19:26 GMT)
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