The $16.6bn deal, agreed before the pandemic, now looks expensive given the impact of coronavirus on the luxury goods industry
The price of the deal, agreed before the pandemic, now looks expensive given the impact of coronavirus on the luxury goods industry © Bloomberg

LVMH’s $16.6bn takeover of US jeweller Tiffany has become embroiled in trade tensions between Paris and Washington, with the world’s largest luxury group saying it had to pull out of the deal after the French government urged it to delay completion.

Tiffany hit back with a lawsuit against LVMH, which is controlled by French billionaire Bernard Arnault, alleging it used tactics such as delaying antitrust filings to put back the deal’s completion and run out the clock on the merger agreement.

LVMH’s attempted withdrawal from the deal caps months of manoeuvring by Mr Arnault, dubbed “the wolf in cashmere” for his hardball dealmaking tactics. He has been seeking to renegotiate the terms of the $135-a-share deal agreed in November to reflect the fallout from the Covid-19 crisis.

The largest deal in the luxury sector has become the most high-profile example of how transactions agreed before the pandemic have soured because of a radically different business outlook.

The stage is now set for a bitter legal battle that will leave judges in the US state of Delaware with the task of deciding which side prevails — and if the deal completes.

The latest skirmish began on Tuesday when LVMH’s legal team told Tiffany that the French foreign minister, Jean-Yves Le Drian, had written to the Paris-based company asking it to delay the closing of the acquisition until January 6 to “support the steps taken vis-à-vis the American government”.

The letter referred to a move by Donald Trump, US president, to implement customs duties by that date on certain French industries, including luxury goods, in reaction to France adopting a digital services tax.

“I am sure that you will understand the need to take part in our country’s efforts to defend its national interests,” Mr Le Drian added in the letter.

Jean-Jacques Guiony, LVMH’s chief financial officer, said on a conference call with reporters that the group consulted lawyers and decided that the French government’s letter was a “valid request” that it could not ignore. As a result, LVMH could not meet the November 24 deadline to complete the merger as laid out in the agreement with Tiffany — but nor did it want to extend the deadline as the US jeweller had earlier requested.

“The deal cannot take place,” said Mr Guiony. “We are prohibited from closing the transaction and we do not want to lengthen the lock-stop date so the deal cannot happen. It’s as simple as that.”

Tiffany shares fell 8.4 per cent to $111.67 by midday on Wednesday in New York trading.

The US jeweller does not intend to walk away from the deal without a fight, and on Wednesday filed a lawsuit with the Delaware Court of Chancery to force LVMH to close the transaction by November 24.

“LVMH’s recent actions shed light on the true motives behind LVMH’s contrived delays and missed deadlines,” Tiffany said in the lawsuit. “It is now unmistakably clear that LVMH has been running out the clock for the last five months in an effort to get to the initial August 24 2020 ‘drop-dead’ date . . . [as] part of an entirely improper effort to strong-arm Tiffany into agreeing to reduce the merger price.”

Tiffany’s lawsuit also claimed LVMH had breached its transaction agreement by failing to inform the US company immediately after it received the French government’s letter. 

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

The acrimony is a far cry from last year when Mr Arnault lauded the US jeweller founded by Charles Lewis Tiffany in 1837 as an “American icon” that would fit perfectly within LVMH’s portfolio of brands.

However, that was before the coronavirus emergency decimated demand globally for luxury goods: analysts predict a 20 per cent to 35 per cent drop in sales this year and a slow recovery that could take three years.

LVMH’s $135-a-share offer late last year represented a 37 per cent premium to the New York-listed Tiffany’s undisturbed share price at the time, which now looks expensive given luxury’s darker outlook. 

A French government spokesman had said Mr Le Drian would make a statement on the LVMH letter later on Wednesday. “In the context of very important international negotiations with our partners, the French government will not be naive, nor passive,” the spokesman added. “We have goals we want to achieve, and there are negotiations now ongoing with partners such as the United States.”

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