No More Breakfast at Tiffany’s for LVMH

Back in October – long before the world as we knew it got shattered by COVID-19 – the luxury market was buoying around an announcement made by the infamous house of LVMH (the parent company of Louis Vuitton), also known as LVMH Moët Hennessy Louis Vuitton. The company, who was not seen at the time as a leading figure in the realm of jewellery, decided to sharpen its competitive edge by acquiring the much-beloved Tiffany & Co. in a deal worth $14.5 billion (the largest reported acquisition in the sector). The transaction – had it gone through - would have given LVMH ore access to the American market, by adding Tiffany to its arsenal of gemstones among which one could count others like Bvlgari and Christian Dior.

Despite some analysts arguing that the price to be paid for the 182 years old American brand was perhaps lower than a true market valuation, an agreement was struck and approved by the boards of both companies, and the deal was scheduled for completion mid-2020 and [1]. But Corona Virus has shaken not only your reality and mine; it led to unprecedented times being experienced even by the biggest names in the luxury and fashion world and led to many drastic decisions having to be made. So much so that in the early hours of September the 9th, about just a year following the initial unsolicited proposal to acquire, LVMH was reported to have announced its refusal to proceed with its “promise”. By now, the first deadline to complete the acquisition was long gone and things were looking rather grim. The transaction at that point still had not received the necessary approvals from antitrust authorities, namely in the European Union, and despite Tiffany having exercised its option to apply November the 24th as ultimate deadline, LVMH decided to step back.

In their H1 2020 Results, LVMH reported the lowest revenue from their watches and jewellery businesses, with a drop of -38% as opposed to the same period in 2019. Arguably, the data served as an informant to take the decision and walk away from Tiffany. This move might have indeed cheered up the day of some of Tiffany’s shareholders who had previously shown disenchantment with the proposed acquisition – in fact fuelling up litigious behaviour among them on grounds of alleged violations of the 1934 Securities and Exchange Act – certainly left Tiffany (whose shares plunged over 10% following the announcement) with a bitter sentiment.

In response to LVMH’s refusal to proceed with the transaction, Tiffany announced that is had filed of a lawsuit against LVMH at the Court of Chancery of the State of Delaware claiming breach of their obligation under the Merger Agreement. In its press release, it is stated that LVMH justified its move by stating that its decision was in response to the American government e having announced additional customs duties to be implemented on imported French goods, namely in the luxury sector, and their willingness to act in support of the French Foreign Affairs Minister’s efforts to prevent such tariffs from being sanctioned into effect. Tiffany in return considers this step illegal under their agreement and seeks litigious retaliation.

Keep an eye on this space to see how the story unfolds…

[1] For those “curiously spirited”, Skadden, Arps, Slate, Meagher & Flom LLP served as legal counsel to LVMH, whereas Sullivan & Cromwell LLP acted as counsel for Tiffany.