LVMH drops $16 billion Tiffany takeover, battle lines drawn

Tiffany & Co. jewelry is displayed in a store in Paris, France

French luxury goods giant LVMH (LVMH.PA) said it would walk away from its planned $16 billion takeover of U.S. jeweler Tiffany (TIF.N), in the most high-profile example of a deal to face collapse following the COVID-19 pandemic.

The stage is set for an acrimonious legal dispute; Tiffany said it was filing a lawsuit against LVMH to force it to complete the deal as agreed last year, accusing the French group of deliberately stalling completion of the takeover.

The deal, which would have been the biggest-ever in the luxury industry, was struck before the pandemic, which has hit the sector hard and raised questions about whether Louis Vuitton owner LVMH was overpaying.

The luxury industry is facing an unprecedented sales slump after a decade of stellar growth, with revenues expected to fall by as much as 35% this year. It will take until 2022-23 for revenues to return to 2019 levels, according to consultancy Bain.

LVMH said in a statement that its board had received a letter from the French foreign ministry asking it to delay the acquisition of Tiffany to beyond Jan. 6, 2021, given the threat of additional U.S. tariffs against French products.

The French group added that Tiffany had also asked it to postpone the closing of the deal, to Dec. 31 of this year from an already extended deadline of Nov. 24.

The company said its board had decided to stick to the terms of the original merger agreement, which stated that the deal must be completed by Nov. 24.

“As it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co,” it said.

Tiffany said it was suing LVMH in Delaware – where the U.S. jeweler is registered – and seeking a court order requiring the French group to abide by its contractual obligation under the deal to complete the transaction on the agreed terms.

It said LVMH was in breach of its obligations relating to obtaining antitrust clearance.

It also refuted LVMH’s suggestion “that it can avoid completing the acquisition by claiming Tiffany has undergone a material adverse effect or breached its obligations under the Merger Agreement, or that the transaction is in some way inconsistent with its patriotic duties as a French corporation.”

Tiffany shares were down about 9% in premarket trading in the United States. LVMH was down 1.3% in Paris.

The agreement had looked in doubt since it emerged in June that LVMH boss Bernard Arnault, a shrewd dealmaker who has built a luxury empire through acquisitions, was exploring ways to reopen price negotiations with Tiffany because of the COVID-19 pandemic, according to sources with knowledge of the matter.

Those sources said later that the group had decided against demanding a lower price, and LVMH has repeatedly said it was committed to the deal.

But an initial Aug. 24 deadline was pushed back by three months as the deal had not yet been cleared by the EU Commision and other antitrust authorities.

When it struck the deal, LVMH was betting it could restore the luster of Tiffany by investing in spruced-up stores and new collections.

But the U.S. jeweler’s worldwide sales fell 29% to $747.1 million in the three months to end July, missing expectations of $772 million, even though it flagged a recovery in August. LVMH’s own watches and jewelry division was the worst-performing in the first half of the year.

On Wednesday, Tiffany said it expected its earnings for the fourth quarter of 2020 to exceed those for the same period last year.

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