By: Gabrielle Craft
The luxury goods giant, LVMH, planned to acquire the iconic jeweler, Tiffany & Co., November of last year.[1] The $16 billion dollar merger would break the luxury industry’s record as the largest merger to date.[2] But earlier this week, the French corporation made the sudden decision to back out of the record-breaking acquisition.[3] This decision spurred an onslaught on accusations and excuses from both parties. LVMH cites a directive from the French government to postpone the deal in the wake of the U.S.’s threats of implementing tariffs on French goods.[4] Tiffany alleges that LVMH is leveraging the social unrest surrounding police brutality and COVID-19 to leverage a lower price.[5] Additionally, “a person familiar with the [French] government’s thinking” reported that LVMH Chairman Bernard Arnault sought help from the French government to assist LVMH in vacating the deal with Tiffany.[6] Of course, LVMH vehemently denies this allegation.[7] LVMH accuses Tiffany of mishandling the corporation during the COVID-19 crisis.[8] LVMH’s decision to pull-out of the deal has compelled the parties to turn to the courts. Tiffany filed a lawsuit in Delaware alleging breach of contract and seeks to compel the agreement.[9] LVMH announced that it plans to countersue Tiffany for its negligent handling of the company during the COVID-19 crisis.[10]
The Merger Agreement, executed in November 2019, provides that the closing date would be August 24, 2020.[11] The Agreement gave both parties the unilateral authority to extend the closing date to November 24, 2020, if and only if it was due to an issue of antitrust clearance.[12] LVMH failed to file antitrust approvals in three of the required jurisdictions by August 24, 2020, which prompted Tiffany to extend the closing date.[13] As of September 9, 2020, three months from the extended deadline, LVMH has still not filed the required antitrust approvals in the European Union or Taiwan and has not received approval in Japan and Mexico.[14] Tiffany alleges that LVMH is using the antitrust provision as a way to “delay or avoid receipt of regulatory approvals in those jurisdictions in breach of the Merger Agreement.”[15]
LVMH is now seeking to postpone the deal until January 6, 2021, at the French government’s directive.[16] LVMH says that it has received a letter from the Ministre de l’Europe et des Affaires Etrangéres stating that LVMH “should defer the closing of the pending Tiffany transaction until January 6, 2021,” to dissuade the U.S. from implementing tariffs on French goods.[17] Tiffany refutes that the French government has the authority to manipulate contractual agreements.[18] Chairman of the Tiffany & Co. Board, Roger N. Farah, states, “[T]he simple facts are that there is no basis under French law for the Foreign Affairs Minister to order a company to breach a valid and binding agreement.”[19]
Additionally, Tiffany refutes LVMH’s argument that it mishandled the company during the COVID-19 crisis.[20] Chief Executive Officer, Alessandro Bogliolo, asserts that “The fundamental strength of Tiffany’s business is clear. The company has already returned to profitability after just one quarter of losses, and we expect our earnings in the fourth quarter of 2020 will actually exceed the same period in 2019.”[21]
It is unlikely that the French conglomerate will be able to back out of this multi-billion-dollar deal unscathed. The courts will have to decide whether the French government has the authority to manipulate private business acquisitions outside of regulatory means. The question becomes whether Tiffany’s major financial downfalls, caused by COVID-19, constitute a Material Adverse Effect (“MAE”), allowing LVMH to avoid completing the acquisition.
It seems until discovery is necessary to establish whether Tiffany mismanaged the corporation. Additionally, the court will need to assess whether the COVID-19 crisis constitutes an MAE that would allow for LVMH to be released of its contractual obligations. Will this case of cold feet result in a judgment of unclean hands? The world has first-class seats to the luxury industry’s most expensive acquisition gone awry.
[1] Robert Williams et al., LVMH to Buy Tiffany for $16.2 Billion in Record Luxury Deal, Bloomberg Law, Nov 25, 2019.
[2] Id.
[3] Flavia Krause-Jackson, LVMH’s Arnault Leaned On Government to Exit Tiffany Deal, Bloomberg Law, Sept. 10, 2020.
[4] Id.
[5] Id.
[6] Id.
[7] Press Release, Tiffany & Co., Tiffany Files Lawsuit Against LVMH To Enforce Merger Agreement (Sept. 9, 2020) [hereinafter Tiffany Press Release].
[8] Peter Nurse, Tesla, RH Rise Premarket; GameStop Falls, Investing.com, Sept. 10, 2020, 2020 WLNR 25589887.
[9] Tiffany Press Release, supra note 7.
[10] Nurse, Tesla, RH Rise Premarket; GameStop Falls, supra, note 8.
[11] Tiffany Press Release, supra note 7.
[12] Id.
[13] Id.
[14] Id.
[15] Id.
[16] Press Release, LVMH, (Sept. 9, 2020) [hereinafter, LVMH Press Release].
[17] Id.
[18] Tiffany Press Release, supra, note 7.
[19] Id.
[20] Id.
[21] Id.
