LVMH Pulls Out of Tiffany Takeover -- 3rd Update

By Matthew Dalton and Suzanne Kapner 

PARIS -- Luxury-goods giant LVMH Moët Hennessy Louis Vuitton SE said Wednesday it was backing out of its $16.2 billion takeover of Tiffany & Co, in a sign of how trade tensions and the coronavirus pandemic have taken the air out of the highflying luxury industry.

LVMH said it no longer wanted to buy Tiffany because the deal was being dragged into the middle of trade disputes between France and the Trump administration. The conglomerate said it had received a letter from the French foreign ministry asking it to delay the acquisition until Jan. 6, 2021, more than a month after the closing date stipulated in the merger agreement. The companies had already agreed to push back the deadline for completing the deal from Aug. 24 to Nov. 24.

LVMH said the French government was seeking the delay in response to tariffs Washington has threatened to impose on French goods.

On Wednesday Tiffany accused LVMH of using the letter from the French government as a pretext to back out of a deal that had lost much of its luster since the pandemic changed the economics of the luxury industry. The U.S. jeweler said it has filed a lawsuit in Delaware, where key LVMH U.S. subsidiaries are based, to enforce the agreement.

"We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms," Tiffany Chairman Roger Farah said. "But the 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."

Jean-Jacques Guiony, LVMH's chief financial officer, said it considered the French government's demand a valid, legally-binding order. "We have no other choice but to apply this decision," he said.

A spokeswoman for the French foreign ministry didn't immediately respond to a request for comment.

The agreement allows Tiffany to pay a termination fee of $575 million to walk away from the deal, but LVMH doesn't have the option of paying to back out. LVMH and Tiffany had already agreed to push back the deadline for completing the deal from Aug. 24 to Nov. 24.

Over the summer, Bernard Arnault, chief executive and controlling shareholder of LVMH, began reviewing whether to move forward with the deal, according to a person familiar with the matter. But analysts said the agreement signed between the two companies appeared to give Mr. Arnault little leeway to back out.

Tiffany said LVMH hadn't sought approval for the merger in several key jurisdictions, including the European Union, making finalization of the deal difficult before Nov. 24. LVMH said Tiffany has asked to extend the deadline for the acquisition until Dec. 31 of this year. A person close to Tiffany said the jeweler never asked for a delay beyond the Nov. 24 deadline.

Paris and Washington have been locked in a trans-Atlantic tit-for-tat over trade for more than a year. France has been at the forefront of countries, including the U.K., Italy and Spain, that are pursuing plans to tax digital companies, such as Alphabet Inc. and Facebook Inc. The U.S. in turn has threatened to impose retaliatory tariffs on any country that implements such a tax. Luxury goods have been targeted by Washington as part of the long-running U.S.-EU dispute over subsidies for Boeing Co. and Airbus.

The deal's unraveling also shows how the coronavirus pandemic is reshaping the luxury industry. Brands have long relied on big-spending tourists from China and the U.S. to splurge on handbags and other goods while visiting Paris, Milan and other destinations. That business model is under threat as countries maintain travel restrictions, and perennial travelers shy away from overseas trips.

The plan to acquire the American jeweler was the biggest ever attempted by Bernard Arnault, chief executive and controlling shareholder of LVMH. The deal, completed shortly before the coronavirus pandemic threw the luxury-goods market into turmoil, was part of Mr. Arnault's ambition to expand its jewelry business, which was one of the fastest-growing sectors in luxury.

After approaching Tiffany in October 2019 with an all-cash takeover worth about $120 a share, LVMH paid close to Tiffany's all-time-high share price to acquire the company in November 2019. Tiffany shares have fallen well below LVMH's $135 offer price since the pandemic hit. Tiffany's stock fell 9.9% in early trading Wednesday.

Write to Matthew Dalton at [e-mail] and Suzanne Kapner at [e-mail]

(END) Dow Jones Newswires

September 09, 2020 10:13 ET (14:13 GMT)

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