Tiffany sues LVMH for reneging on $ 16 billion deal as France intervenes

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PARIS / NEW YORK (Reuters) – Tiffany & Co TIF.N continued LVMH LVMH.PA on Wednesday after the French luxury giant told the American jeweler that it could not enter into a $ 16 billion deal to acquire it due to a request from the French government and the impact of the coronavirus.

LVMH, led by billionaire Bernard Arnault, said its board of directors 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.

This, LVMH argued, made it impossible to meet a contractual deadline of November 24 to complete the acquisition, adding that it was unwilling to extend the deal any further. The intervention of the French state marked the latest turning point in the attempt to combine some of the fashion world’s most prominent luxury brands.

“I am sure you will understand the need to participate in the efforts of our country to defend its national interests”, wrote the French Minister of Foreign Affairs, Jean-Yves Le Drian, to Arnault, according to an English translation of the letter of the 31 August. Tiffany received from LVMH and released it on Wednesday.

“The deal cannot happen. We are prohibited from entering into the agreement, ”said Jean Jacques Guiony, Chief Financial Officer of LVMH, during a conference call. Bloomberg News reported, citing a source he did not identify, that Arnault asked for help from the French government in withdrawing from the deal with Tiffany, but Guiony said the letter was unsolicited. and was a total surprise for LVMH.

A French government source said the letter had “political value” and was intended to alert LVMH to the risks of continuing the deal at a time when France was arguing with the United States over trade tariffs – but it was advisory and non-binding.

The White House did not respond to a request for comment on the French government’s intervention in the deal. Analysts were skeptical of any attempt by France to use LVMH’s offer on Tiffany as effective leverage in its trade dispute with the United States.

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“The French government is certainly very active in the defense of the French national interest. But this has led in most cases to preventing the acquisition of French companies, ”said Luca Solca, luxury analyst at Bernstein.

The financial fallout from the pandemic made the price of the operation less attractive for LVMH. Tiffany’s global sales fell 29% to $ 747.1 million in the three months ended July 31, missing expectations of $ 772 million. Guiony on Wednesday called Tiffany’s financial performance “lackluster” in recent months.

It was not immediately clear whether LVMH was looking to pull out of the Tiffany acquisition, or use the hurdles the deal faced as leverage to renegotiate the price. Tiffany has so far resisted attempts to reopen price negotiations.

Tiffany shares ended Wednesday down 6.4% to $ 113.96, well below the price of $ 135 per share, reflecting investor uncertainty as to whether the deal will continue and at what price .

DELAWARE

Tiffany has filed her lawsuit against LVMH in Delaware – the U.S. state in which the New York-based company is registered – to force it to go through the deal as agreed last year.

He said LVMH was dragging its feet when it came to seeking regulatory approval for the deal in the European Union, Taiwan and Japan. Sources close to LVMH’s plans said the company plans to file an application for EU approval within days.

In her lawsuit, Tiffany also said she rebutted LVMH’s suggestion to withdraw from the deal “on the grounds that Tiffany suffered a material adverse effect or breached its obligations under the merger agreement, or that the transaction was somehow incompatible with his patriotic obligations. as a French company. “

Tiffany also said the merger deal requires it to continue paying dividends to its shareholders. Sources close to the companies said LVMH asked Tiffany to stop payments to shareholders while the deal was pending finalization.

LVMH has so far let its contract with Tiffany remain in place. Tiffany is asking the Delaware court to force LVMH to comply with its obligations to complete the transaction or pay damages. LVMH had not responded to Tiffany’s lawsuit with legal action on Wednesday afternoon.

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 drop as much as 35% this year. It will take until 2022-2023 for revenues to return to 2019 levels, according to consultancy Bain.

The Tiffany deal looked questionable since sources told Reuters in June that Arnault, France’s richest person and a savvy negotiator, was exploring ways to reopen price negotiations with the jeweler amid the pandemic . Tiffany said in her lawsuit that she saw LVMH develop “buyer’s remorse”.

The deal is the latest in a series of mergers and acquisitions that were agreed to before the coronavirus pandemic took off around the world in March, and which have since ended up in court, have been renegotiated or dropped.

In the retail industry, L Brands Inc LB.N agreed to let private equity firm Sycamore Partners pull out of the $ 525 million acquisition of a controlling stake in its Victoria’s Secret lingerie business, while U.S. shopping center owners Simon Property Group Inc SPG.N et Taubman Centers Inc TCO.N are fighting in Delaware court over the former’s decision to forgo the latter’s $ 3.6 billion acquisition.

Reporting by Sarah White in Paris, Silvia Aloisi in Milan and Greg Roumeliotis in New York; Written by Silvia Aloisi; Editing by Tom Brown and Matthew Lewis

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