October 30, 2020

LVMH/Tiffany: $430MM Price Concession Buys More Certainty

It looks like LVMH & Tiffany decided to kiss and make up.  Earlier this week, the parties announced that they had agreed to amend their existing merger agreement & move forward with a revised deal.  Media reports on the new deal focused on the reduction in the purchase price from $135 per share to $131.50 per share, which translated into a savings of approximately $430 million for LVMH and an overall reduction in the purchase price of about 2.5%.

But a review of the Form 8-K filing that Tiffany made yesterday reveals some other interesting aspects of the revised transaction. It seems clear from the Amended & Restated Merger Agreement that, in exchange for its concessions on price, Tiffany was able to extract some pretty dramatic changes to the terms of the deal that appear to significantly enhance closing certainty. These include:

– Removing the language contained in Section 8.2(d) of the original agreement conditioning LVMH’s right to close on the absence of a MAE at Tiffany.

– Narrowing the scope of Section 8.2(a) of the original agreement that allowed LVMH to avoid closing if Tiffany breached a rep or warranty.  In general, the original deal would have allowed LVMH not to close if a breach of any rep or warranty resulted in a MAE, while the revised condition covers only a handful of core representations & eliminates any reference to a MAE.

– Eliminating one of the conditions that was at the center of the dispute between the parties – LVMH’s right not to close in the event of a “Legal Restraint” permanently enjoining consummation of the deal (See Section 8.1(c) of the original agreement).

– Substantially narrowing LVMH’s right to terminate the deal.  Under Article 9 of the revised agreement, LVMH may only terminate the deal prior to the June 30, 2021 drop dead date if Tiffany shareholders vote it down, if the Tiffany board changes its recommendation or if Tiffany breaches the no-shop covenant and the other provisions of Section 7.3 of the revised agreement.

Another interesting aspect of the deal is contained in Section 10.6(b) of the revised agreement, which provides as follows:

In the event that any Proceeding is brought by the Company to enforce the terms of this Agreement or for money damages, the “Per Share Merger Consideration” shall be deemed, for all purposes in that Proceeding, including any award of specific performance or damages, to be $135.00 in cash, without interest and less any required withholding Taxes.

In essence, that means that if LVMH tries to wiggle out of the deal again & Tiffany sues, it will face claims valued at the original purchase price, not at the discounted price contained in the revised agreement. Since the language also addresses specific performance claims, future shenanigans by LVMH could result in an obligation to proceed with the deal at the original $135 per share price.

Some commentators have observed that $430 million seems like a steep price to pay for peace in a dispute in which Tiffany’s legal position appeared to be strong. But with the developed world hunkering down to confront a resurgent pandemic, potential post-election chaos in the U.S., & Tiffany’s continuing lackluster performance, it’s hard for me to second-guess the board’s decision to accept a 2.5% discount in exchange for a much more certain deal for its shareholders.

John Jenkins