A Big Fight Between LVMH And Tiffany

After the $16.2 billion deal collapsed, LVMH and Tiffany were in a legal dispute.

Paris, France - before the completion of the acquisition case in the history of luxury goods industry, a huge legal battle has come.

In just a few days, the relationship between LVMH and Tiffany has changed dramatically. The French luxury giant, which once claimed to buy the US jewelry brand for $16.2 billion, has not only urgently stopped the deal, but has also decided to launch a lawsuit to counter the stern accusations made by the former.

LVMH said in a statement on Thursday that it was "surprised that Tiffany's choice to sue the court was completely unfounded and that the brand was clearly prepared to communicate with shareholders in a misleading way.". LVMH regarded this as a "defamation" and decided to defend itself. It clarified in the Delaware court that the group did not deliberately obstruct the review process of regulators.

In addition, the board of directors of the group also carefully studied the current economic situation and crisis management of Tiffany, and found that the latter's poor management during the epidemic period and failure to follow normal business operations in the face of the crisis led to a sharp drop in its performance in the first half of the year, which was significantly lower than LVMH's expectations for the brand when it signed the agreement. The group stressed that Tiffany's performance was "very disappointing" and that it still distributed a large dividend at a loss, which ultimately had a significant adverse effect. In view of the above reasons, LVMH will sue Tiffany.

Although LVMH said in a two-day foreword that the abandonment of the acquisition was due to the French government's request to extend the completion date of the transaction to January 6 next year on the ground of US tariff risk, which was inconsistent with the original November 24 of the agreement, Tiffany directly pointed out that the group was secretly deliberately delaying the anti-monopoly approval process, and the US France trade dispute was just an excuse.

The French Foreign Ministry did not immediately respond to BOF's request for comment, but Reuters, citing people familiar with the matter, said the French government's notice was not binding. LVMH group previously described the letter as an "order", which is totally different in nature. "We believe LVMH will seek to use any possible means to avoid closing the deal in accordance with the terms of the agreement," Tiffany chairman Roger Farah said in a statement

Many analysts in the industry are also skeptical, pointing out that "buyer's reneging" may be a more realistic reason.

"Today's developments are more like LVMH's last resort," Dylan Carden, an analyst at William Blair, an investment bank, wrote in the report: "in our view, the group is not trying to completely terminate the deal, but rather looking for loopholes in the law to force Tiffany to renegotiate the terms of the deal."

In a telephone interview, Jean Jacques guiony, LVMH's chief financial officer, did not disclose the authority of the French government's order, but repeatedly reiterated that the group must choose to obey in law. "This deal can't be done any more, it's already banned," guiony added, adding that Tiffany's charges against the group were totally groundless and LVMH would not have to pay extra for the termination of the deal.

Bernard Arnault, chairman and CEO of the group, has long regarded Tiffany as a unique and valuable brand asset, which is one of the few jewelry brands with international reputation. However, with the continuous impact of the epidemic on the luxury industry, Tiffany's share price and sales have declined. So far this year, LVMH has repeatedly heard that LVMH hopes to lower the purchase price.

Botifni has not yet responded to requests for comment. In a statement on Wednesday, the brand said its results were in line with the requirements of the acquisition agreement and had an optimistic outlook, with fourth quarter earnings expected to exceed revenue in the same period last year.

Luca Solca, head of luxury research at Bernstein, said in the report that although the Delaware court should determine that LVMH paid Tiffany certain fees and compensate for the losses, the court may also require LVMH to continue the acquisition. It said the two companies could reopen negotiations in the new year if trade tensions eased and the US presidential election ended in November.

Pauline brown, a former chairman of LVMH in the Americas, believes that the group's assets have become increasingly complex, which may also be one of the reasons for the group's decision to withdraw from the acquisition. As the epidemic has had an unparalleled impact on physical retail, "the group's performance is much worse than the outside world knows," says Brown, now a writer and consultant. "It's a concentrated reflection of the challenges in the Arnault portfolio."

In any case, LVMH and Tiffany are not going to get out of this fight intact.

"It could be bad for Tiffany. Investors believe LVMH will either close the deal or seek a price cut. " "There will also be a negative impact on LVMH," said zuzanna pusz, an analyst at UBS. Because the group's shareholders welcome the deal. " On the other hand, she believes, LVMH may return to the market for other large-scale acquisitions.

If LVMH exits completely, Tiffany could welcome buyers like Kaiyun or Richemont, Solca warned.

Disclosure of interests: LVMH group is one of the many investors of the business of fashion and holds a minority stake in BOF. All investors have signed relevant shareholder documents to ensure the editorial independence of BOF.