On November 25, 2019, luxury goods giant LVMH announced that it would acquire Tiffany, the global luxury jeweller, for $135 per share in cash, with the transaction totalling an equity value of approximately $16.6 billion.
At the time, Bernard Arnault, Chairman and Chief Executive Officer of LVMH, commented: “This approval is a significant milestone as we move closer to completing our acquisition of Tiffany, an iconic company with a rich heritage and unique positioning in the global luxury jewellery market. A globally recognized symbol of love, Tiffany will be an outstanding addition to our unique portfolio of luxury brands. We look forward to welcoming Tiffany into the LVMH family and helping the brand reach new heights as an LVMH Maison.”
However, within weeks, the global economy was shut down by the coronavirus pandemic. With most of the world under lockdown, expenditure on diamonds, handbags, and furs came to a standstill. Subsequently, Tiffany has been severely negatively impacted by the pandemic. According to LVMH, it had considerably underperformed LVMH’s comparable brands in the first half of the year, with a net loss of $33 million, and a revenue decline of 34 per cent in the six months to the end of July.
“We cannot be very pleased with a loss-making company,” LVMH CFO Jean-Jacques Guiony told reporters.
Last week, Tiffany & Co. filed a lawsuit against LVMH for stalling the high-profile takeover deal - one that was due to be completed by August. In Tiffany’s press release, the luxury jeweller stated that its lawsuit requires LVMH to abide by its contractual obligation under the Merger Agreement to complete the transaction on the agreed terms.
A day later, LVMH stated that it was also preparing a lawsuit against Tiffany, alleging that it has mismanaged the business during the Covid-19 crisis, forcing the world’s largest luxury group to backtrack on its $16.6 billion acquisition.
So, what has really happened to what would have been the luxury sector’s largest deal this year?
Entangled in a Trade War
LVMH claims that the French government urged it to delay the deal, to help France in a trade fallout with the U.S. over tariff disputes. The French foreign ministry outlined in a letter its request for LVMH to “take part” in defending the country’s interests in relation to tariffs that Trump has threatened to impose on French goods, in response to a proposed new tax on digital companies.
The unexpected intervention by the French government has raised eyebrows - some see it as merely a tactic by LVMH to delay completing the transaction, as Tiffany’s shares are currently trading at a fraction of the $135 agreed by both parties. It is also no surprise that Mr Arnault has been working tirelessly behind the scenes for months, in efforts to pressure Tiffany into renegotiating the deal at a lower price.
More controversially, a Bloomberg article reports that Mr Arnault “asked for help” from the French government, and “initiated the move” that led LVMH to say it would withdraw from the takeover. The company said it “formally denied” what it called “malicious and unfounded allegations.”
Guiony, the group’s finance officer, dismissed the suggestion as absurd in an interview last week:
“You must be joking. Are you seriously suggesting that we procured the letter? I don’t even want to answer that question.”
Mr Guiony later said that the letter from the French foreign ministry was “purely and fully unsolicited.” LVMH executives met with the foreign minister Jean-Yves Le Drian after receiving it, but the letter “came as a total surprise,” the CFO said.
People within the industry are definitely sceptical of this response considering the situation. However, there does not seem to be any concrete evidence of foul play at present.
So, where do we go from here?
Merger contracts are typically set in stone. It is rare for buyers to wriggle their way out of agreed deals.
However, Mr Arnault, who is on track to overtake his U.S. rivals to become the richest person in the world, is no stranger to controversy. In fact, this is a signature Arnault move, previously being dubbed as “the wolf in the cashmere coat” thanks to his “high-stakes, take-no-prisoners” approach over the decades, that has helped him to win control of more than 70 brands.
There are a few potential outcomes. First, Tiffany may back down, and cut its asking price to avoid going to war with a man renowned for never admitting defeat. Alternatively, LVMH’s knife-edge tactics could prompt Tiffany to launch a long, expensive legal case, that will form a distraction at a time when the luxury world needs to focus on its recovery post-Covid-19. On the flip side, Tiffany may face an Arnault that has lost a little of his fighting spirit, after fighting, and winning, multiple cases over the last three decades, namely versus Hermes and Gucci.
Future for Tiffany
Wallstreet seems to think that Tiffany can survive just fine on its own. Robert Burke, founder of an eponymous luxury retail consulting firm agrees, as he says:
“At the end of the day, Tiffany will be OK... it offers an image and a history that is kind of second to none and is highly attractive because of that.”
Longer-term, whilst Tiffany faces a costly legal battle against LVMH, there are worries about its future in a damaged economy. These fears are heightened as the company operates within the Global Luxury industry, which is set to contract by 25-45 per cent in 2020, according to estimates by the Boston Consulting Group.
Although it is still unclear what the end of this feud may look like, the stakes are high for both parties, and it could just be the start of a long, deep, and bitter legal row.