LVMH abandons $ 16 billion Tiffany buyout, battle lines drawn

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PARIS / NEW YORK (Reuters) – French luxury giant LVMH has dropped its $ 16 billion buyout of Tiffany, a deal that has lost its luster in the wake of the COVID-19 pandemic, paving the way for a battle relentless as the American jeweler sued to force him.The French group, led by billionaire Bernard Arnault, said its board had received a letter from the French Foreign Ministry asking it to postpone the acquisition until January 6, 2021, given the threat of additional US tariffs against French products.

LVMH (LVMH.PA), CFO Jean Jacques Guiony said the letter was unsolicited and came as a complete surprise, angrily dismissing suggestions that his company was using it as a pretext to withdraw from the deal to buy Tiffany (TIF.N), which was due to be completed on November 24 this year.

“The deal cannot happen. We are prohibited from making the deal, ”Guiony told reporters on a conference call.

In a filing with the U.S. Securities and Exchange Commission, Tiffany released the English translation of the August 31 letter, which she said LVMH provided. “I am sure that you will understand the need to participate in our country’s efforts to defend its national interests,” the French Minister of Foreign Affairs told Arnault.

Nonetheless, the terms of the deal, reportedly the largest ever in the luxury industry and which was agreed to before the pandemic, have also become less commercially attractive due to the health emergency.

The spread of COVID-19 has severely wiped out sales in the sector and raised the question of whether LVMH, owner of Louis Vuitton, was paying too much.

Guiony also said LVMH was not happy with the way Tiffany has been handled in recent months, calling her performance “lackluster”.

French Foreign Minister Jean-Yves Le Drian will address the issue of the planned buyout in detail, a government spokesperson said on Wednesday after a cabinet meeting.

The French government can neither be “passive” nor “naive” in the context of international negotiations with its partners, spokesman Gabriel Attal told reporters.

LVMH said Tiffany also asked it to postpone closing the deal until December 31 of this year from November 24 – a deadline already extended. He said his board decided to stick to the terms of the original merger deal and reject another extension. He added that as it stands, he could not complete the acquisition before the November 24 deadline.

TIFFANY FILES MINUTES

Tiffany has taken legal action against LVMH in Delaware – the US state where the US jeweler is registered – to force the French company to complete the deal as agreed last year, accusing it of deliberately delaying the finalization of the buyback.

He said in his lawsuit that LVMH had made it clear that its real objective was “to attempt to renegotiate the merger price the parties agreed to last November and, barring renegotiation, to miss the allotted time”.

FILE PHOTO: Tiffany & Co. jewelry is on display in a store in Paris, France, November 25, 2019. REUTERS / Gonzalo Fuentes / File Photo

He also rebutted LVMH’s suggestion that it can opt out of the deal “by claiming that Tiffany has suffered a material adverse effect or has breached its obligations under the merger contract, or that the transaction is in some way. sort incompatible with its patriotic duties as a French society. ”

Tiffany stock fell about 8.5% in New York to $ 111.45, well below the $ 135 per share offered by LVMH as part of the buyback transaction. LVMH shares in Paris remained stable.

Luca Solca, luxury analyst at Bernstein, was intrigued by the story of Paris obstructing the takeover of LVMH.

“The French government is certainly very active in the defense of the French national interest. But that has meant in most cases to prevent the acquisition of French companies, ”he said in a note.

JEWELERY LOSES LIGHT

The luxury industry is facing an unprecedented drop in sales due to the pandemic, after a decade of stellar growth, with revenues expected to fall by nearly 35% this year. It will take until 2022-2023 for revenues to return to 2019 levels, according to consultancy Bain.

The Tiffany deal had seemed uncertain since it emerged in June that LVMH boss Arnault, France’s richest person and a savvy negotiator, was exploring ways to reopen price negotiations with the jeweler over pandemic, according to knowledgeable sources on the subject.

These sources later said the group decided not to renegotiate the terms of the takeover, and LVMH has repeatedly stated that it is committed to the deal. Guiony said on Wednesday that he had never sought a better price.

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But the original August 24 deadline was pushed back because the deal had not been approved by the European Commission and other antitrust authorities.

When it struck the deal, LVMH was betting it could give Tiffany a boost by investing in fine stores and new collections.

But the US jeweler’s global sales fell 29% to $ 747.1 million in the three months ending July, missing expectations of $ 772 million. LVMH’s watch and jewelry division was the worst performer in the first half.

Reporting by Sarah White in Paris, Silvia Aloisi in Milan and Greg Roumeliotis in New York; Written by Silvia Aloisi; Edited by Keith Weir and Pravin Char

Our standards:Thomson Reuters Trust Principles.

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