January 13, 2021

Busted Deals: What If LVMH & Tiffany Went to Trial?

Last year’s dispute between LVMH and Tiffany raised all sorts of intriguing legal issues, but the parties ultimately settled their case before the Chancery Court could weigh-in.  But what if that case had gone to trial?

That’s the hypothetical situation that UCLA’s Stephen Bainbridge recently addressed on his blog. After concluding that Tiffany should not have been regarded as having experienced a MAC as a result of the pandemic, the blog addresses the potential implications of the Chancery’s AB Stable decision on the MAC analysis. Here’s an excerpt:

I think Tiffany had a strong argument that there had been no MAC. As a cautionary matter, however, I note that in AB Stable VIII LLC v. Maps Hotels and Resorts One LLC, the Delaware Chancery Court (per VC Travis Laster) assumed that the Seller had “suffered an effect due to the COVID-19 pandemic that was sufficiently material and adverse to satisfy the requirements of Delaware case law. Based on that assumption, the burden rested with Seller to prove that the effect fell within at least one [carveout] exception.”

As was typical of merger agreements entered into before (or in the early days of) the pandemic, the LVMH-Tiffany deal lacked an express carveout for pandemics. As was often the case with disputes over MACs in the wake of the pandemic’s outbreak, Tiffany would have pointed to carveout number viii’s exception for adverse changes arising out of “natural disasters.”

In AB Stable VIII LLC, the MAC contained an exception for adverse changes arising out of “natural disasters or calamities.” VC Laster had little difficulty concluding that the pandemic was a calamity.

The COVID-19 pandemic fits within the plain meaning of the term “calamity.” Millions have endured economic disruptions, become sick, or died from the pandemic. COVID-19 has caused human suffering and loss on a global scale, in the hospitality industry, and for [Seller’s] business. The COVID-19 outbreak has caused lasting suffering and loss throughout the world.

The court further concluded that the pandemic “arguably” fell within the definition of a natural disaster.

The blog goes on to review VC Laster’s analysis of the MAC exclusion for natural disasters, and concludes that “in the unlikely event that the pandemic would have been regarded as a material adverse change in Tiffany’s business, it would have fallen within the exemption for natural disasters.”

By the way, we may not have to wait too much longer for more guidance from Delaware on Covid-19 busted deal issues.  Trial began last week in the $550 million dispute over KKR’s termination of a deal to buy Snow Phipps’ portfolio company DecoPac last April. The trial is expected to be completed by the end of January, and this “On the Case” column by Alison Frankel provides some play-by-play of last week’s proceedings.

John Jenkins