Successful LVMH takeover of Tiffany threatened as France intervenes

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LVMH’s planned $ 16.6 billion buyout of US jeweler Tiffany has come into question after the luxury conglomerate said the French government told it to delay the deal and Tiffany sued in the goal to force LVMH to respect the initial agreement.

The largest ever luxury deal has become the most prominent example of how deals agreed to before the coronavirus pandemic have deteriorated in a radically different business environment.

But the deal has also become a prisoner of growing trade tensions between France and the United States over France’s proposed new tax on digital businesses and the threat of American tariffs on French products.

The latest skirmish began on Tuesday when LVMH’s legal team disclosed to Tiffany a letter she said she had received from the French government. The letter, from the French Ministry of Europe and Foreign Affairs and dated August 31, requested that she delay the closing of the Tiffany acquisition due to an ongoing trade war with the United States.

The letter referred to a decision by the United States to implement tariffs on certain French industries by January 6, including luxury goods, in reaction to France’s adoption of a tax. on digital services. The ministry’s letter called on LVMH’s patriotic duties to counter the American push: “I am sure you will understand the need to participate in our country’s efforts to defend its national interests.

In recent months, as Covid-19 has wreaked havoc on the global economy, LVMH Chairman and CEO Bernard Arnault has looked for ways to force Tiffany’s board of directors to renegotiate the terms of the $ 135 per share agreement that was reached between the groups in November.

LVMH said in a statement Wednesday that it intends to comply with the merger deal with Tiffany, which called for the deal to be completed by November 24. But taking into account the request of the French government and the “initial legal analysis prepared by the council and LVMH”, declared the company “as it stands. . . LVMH will therefore not be able to finalize the acquisition of Tiffany & Co ”.

Tiffany responded by immediately taking legal action against LVMH, saying the French group had deliberately blocked the process of obtaining antitrust approvals and used other delaying tactics to force it to renegotiate the deal. Tiffany filed a complaint with the Delaware Chancellery Court on Wednesday to force LVMH to close the transaction by November 24.

Tiffany’s lawsuit also claimed that LVMH violated its settlement agreement by failing to notify the American company immediately after receiving the letter from the French government.

In her lawsuit, Tiffany said: “The recent actions of LVMH have shed light on the real reasons for the artificial delays and missed deadlines by LVMH. It is now indisputably clear that LVMH has exhausted its time over the past five months in an attempt to arrive at the initial date of August 24, 2020.. . [as] is part of a grossly inappropriate effort to force Tiffany to agree to lower the price of the merger.

Tiffany Chairman Roger Farah said: “We regret having to take this action, but LVMH has left us with no choice but to initiate litigation to protect our company and our shareholders.”

Tiffany shares fell 8.7% Wednesday in pre-market U.S. trading, to $ 111.

Merger arbitrage hedge funds betting on the deal believe Tiffany has a strong legal case to pursue, analysts said.

The stage is now set for an acrimonious legal battle. We are a long way from last year when Mr. Arnault hailed the American jeweler founded by Charles Lewis Tiffany in 1837 as an “American icon” who would fit perfectly into the LVMH brand portfolio.

However, that was before the coronavirus emergency decimated global demand for luxury goods: Analysts predict a 20-35% drop in sales this year and a slow recovery that could take three years.

LVMH’s $ 135 per share offer at the end of last year was a 37% premium over the undisturbed share price of then-New York-listed Tiffany which now appears expensive given the darker outlook for luxury. Tiffany shares closed at $ 121.81 on Tuesday.

Mr Arnault, nicknamed “the cashmere wolf” for his hardball and hostile negotiating tactics, has not spoken publicly about Tiffany for months, leaving lieutenants to answer questions about the process.

LVMH shares were down 1 percent in the afternoon session.

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