September 11, 2020

Breakup at Tiffany’s? LVMH Looks for an Exit

Yesterday’s NYT DealBook had a nice write-up on the battle brewing between LVMH and Tiffany & Co. over the French luxury giant’s efforts to back out of its deal to acquire one of America’s most iconic luxury brands.

The deal is the latest high-profile transaction to fall victim to the annus horribilis that is 2020.  It has been in trouble for some time, with media reports suggesting that LVMH was squishy about moving forward at the deal price even before Tiffany posted disappointing Q1 numbers reflecting the pandemic’s impact.  But the fight formally started on Wednesday, when LVMH issued a somewhat elliiptical statement backing out of the deal. That decision was supposedly prompted by a letter that LVMH received from the French government “directing” it to defer the closing of the deal until after the drop dead date set forth in Section 9.2(a) of the Merger Agreement. Here’s an excerpt from the English version of LVMH’s statement:

The Board learned of a letter from the French European and Foreign Affairs Minister which, in reaction to the threat of taxes on French products by the US, directed the Group to differ the acquisition of Tiffany until after January 6th, 2021. Furthermore, the Board noted Tiffany & Co.’s requested to extend the “Outside Date” in the Merger Agreement from November 24th to December 31st, 2020.

As a results of these elements, and knowledge of the first legal analysis led by the advisors and the LVMH teams, the Board decided to comply with the Merger Agreement signed in November 2019 which provides, in any event for a closing deadline no later than November 24th, 2020 and officially records that, as it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co.

Obviously, this loses something in the translation, but you get the gist of it – and so did Tiffany, which responded by filing this 114-page complaint in Delaware Chancery Court. Tiffany is seeking specific performance & a declaratory judgment that, among other things, LMVH breached the Merger Agreement by allegedly dragging its feet in obtaining necessary antitrust approvals, that Tiffany has not experienced an MAE & that it validly extended the Merger Agreement’s drop dead date.

Tiffany also wants the Court to hold that the French government’s letter to LVMH isn’t an “order” entitling LVMH to terminate the Merger Agreement. Here’s an excerpt from the complaint:

Section 8.1(c) of the Merger Agreement sets forth the limited circumstances in which action by a governmental entity can excuse a party’s obligation to complete the transaction. That section provides, in relevant part, that a party need not close if a governmental entity has issued an “Order . . . that is in effect and enjoins, prevents or otherwise prohibits, materially restrains or materially impairs or makes unlawful consummation of the transactions contemplated by this Agreement.”

Tiffany also cites Section 9.2 of the Merger Agreement, which it contends prohibits a party from terminating the agreement unless a particular legal restraint is “in effect and shall have permanently restrained, enjoined or otherwise prohibited the consummation of the Merger and such Legal Restraint shall have become final and non-appealable.”  It contends that the French government’s letter doesn’t come close to qualifying as the kind of legal restraint that would prevent LVMH from completing the transaction.

LVMH issued a statement to the effect that Tiffany’s claims are “unfounded” and says that it’s also going file a lawsuit against Tiffany.  As always is the case in situations like this, the question is – does LVMH really want out, or is it just looking to renegotiate the price?  Tiffany sure seems to think it’s the latter, and said so in its public statement announcing the lawsuit.

I have no idea how this will play out, but I hope the deal comes together in the end. What can I say? I’m a sucker for happy endings.

John Jenkins