Bernard Arnault is known as “the wolf in cashmere”. He resembles a lamb in Lycra after his acrimonious renegotiation of LVMH’s takeover of Tiffany. The French luxury conglomerate has cut its purchase price by less than 3 per cent, slightly less than $500m. This smacks of face saving for the tycoon. Other acquirers who hoped to rejig deals in response to coronavirus will think twice now.
LVMH argued in court papers seeking to annul the acquisition that the New York jeweller was a “highly profitable luxury brand [that] no longer exists”. The assertion was incorrect. But nor is Tiffany worth the $16.6bn LVMH agreed to pay a year ago.
Mr Arnault misread the resolve of the jeweller and the strength of Delaware takeover law. His campaign even dragged in the French government, which wrote a much-ridiculed letter arguing the deal should be delayed. In the end, Tiffany shareholders get almost the price they bargained for. Mr Arnault’s Machiavellian image is diminished accordingly.
On occasion, buyers and sellers agree to walk away from deals or lower the price. Delaware corporate law courts have virtually never allowed a company to argue a so-called “materially adverse effect” should get them off the hook.
Mr Arnault’s hard line was curious. First, LVMH is a huge conglomerate with an enterprise value of more than $250bn. It can easily absorb Tiffany, even at a bloated price.
Second, LVMH chased Tiffany lustily because the jeweller boosts its portfolio in the area of “hard goods”. That remains true even in a pandemic. Tiffany sales have improved sharply since March. Year on year they are only slightly weaker. Strength in China is offsetting the lacklustre US.
It is hard to shake the suspicion that a consummate dealmaker suffered an uncharacteristic attack of buyer’s remorse. His capitulation will delight hedge funds who bought Tiffany stock as low as $114 a share this year, implying a 15 per cent upside. Mr Arnault now has an incentive to integrate Tiffany so profitably that fans will agree he got a bargain.
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