LVMH lawsuit calls Tiffany’s outlook “dismal”

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A “catastrophic” performance since the coronavirus epidemic has left Tiffany with “dismal” prospects for the future, according to the company, which until recently wanted to buy the American luxury jeweler for $ 16.6 billion.LVMH, the conglomerate run by French tycoon Bernard Arnault, launched the scathing attack on Tiffany and her management in a lawsuit filed Monday night, in which it seeks a judge’s blessing to withdraw from the deal.

In a 97-page court case in the U.S. state of Delaware, LVMH argues that Tiffany’s decisions to cut capital and marketing investments, take on additional debt and pay cash dividends despite the pandemic mean that it is a different undertaking from the one it had accepted. buy.

The filing is the latest salvo in the legal battle that will determine the fate of a deal struck last year to make the New York-based jeweler part of Mr. Arnault’s empire that encompasses brands such as Louis Vuitton, Christian Dior and Bulgari. Tiffany has already sued LVMH in an attempt to maintain the deal.

An expedited trial is scheduled for early January, although the two companies could also seek a negotiated solution before that date.

LVMH said in its filing that Tiffany was “ill-suited to the challenges ahead” and that “its performance has been catastrophic and its outlook remains bleak” after recording a loss of $ 45 million in the first half.

“Tiffany’s performance will continue to be poor. . .[and its]projections for the fourth quarter of 2020 are questionable given the continued and substantial impact of the pandemic, which continues to hamper Tiffany’s sales and shows no signs of slowing down, ”the luxury goods group said.

LVMH also accused Tiffany’s management of trying to force the deal because its executives could profit from the deal closing. LVMH said Tiffany chief executive Alessandro Bogliolo would pocket around $ 44 million, adding that “his golden parachute is equivalent to Tiffany’s losses in the first half of 2020”.

The Delaware courts have only once allowed a buyer to waive an agreed merger agreement and have been very skeptical of the “material adverse effects” arguments in which the suitors claim external events allow them. to renounce a deal. This led LVMH to also seek to argue that Tiffany’s management breached their obligations to manage the company between signing and closing the deal.

Tiffany insisted she was acting in the best interests of shareholders.

In addition to dramatically increasing the war of words between LVMH and Tiffany over the direction of the jeweler, Monday’s filing also included a key legal argument from LVMH intended to persuade the Delaware court to invoke a significant adverse effect: Tiffany did not include a pandemic in a list of catastrophic events specifically mentioned as risks that LVMH should bear.

Tiffany sought and received similar ‘exceptions’ for cyber attacks, protests in France and civil unrest in Hong Kong that disrupted retail operations, LVMH argued, showing Tiffany and her lawyers understand the importance such clauses to determine the circumstances in which LVMH should still complete the transaction.

“Yet Tiffany did not get an exclusion for public health crises or pandemics,” he said. “Against this background, the decision of two sophisticated parties, represented by sophisticated advisers, to omit a pandemic exclusion is revealing. The pandemic has caused a significant adverse effect which allows LVMH to end. ”

LVMH has been maneuvering behind the scenes for months to pressure Tiffany to accept a lower price after Mr Arnault became convinced that the price of $ 135 per share agreed in November made no sense given the outlook darker luxury after the pandemic.

Tiffany has repeatedly refused to consider a price cut, saying the French group must meet the original terms.

As the legal skirmishes continue, LVMH has faced a backlash in France over whether it has appealed to the French government in the battle. When LVMH said earlier this month that it could not complete the Tiffany deal as expected, it blamed a letter received from the French Foreign Ministry asking it to delay closing the deal until January 6 in order to help the country in an ongoing trade dispute. with the United States.

LVMH has repeatedly denied soliciting the letter, but said it thought it was a legally binding ordinance from France.

During questioning in the French parliament last week, however, Foreign Minister Jean-Yves Le Drian said he drafted the letter in response to a question from LVMH.

“My role is to apply, if necessary, the government’s opinion on the political evaluations of the management of major international events to come,” said Mr. Le Drian. “That’s why I answered a question from the LVMH group, totally in my role.”

Additional reporting by Alistair Gray

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