LVMH's Determination to Fight Tiffany Raises Deal Stakes
September 29 2020 - 9:40AM
Dow Jones News
By Carol Ryan
LVMH has come up with a fresh reason to derail the luxury
industry's biggest deal on record. If there is any escape hatch
from its $16 billion purchase of Tiffany & Co., the French
company seems determined to find it.
Late on Monday, LVMH Moët Hennessy Louis Vuitton filed its
countersuit against Tiffany as the two businesses prepare to go to
trial in January. It showed a new line of attack. LVMH will try to
convince the judge that the pandemic has caused a "material adverse
effect" (MAE): an event that allows it to break the deal. Tiffany's
legal team didn't spell out clearly in the merger agreement that
LVMH is barred from using a pandemic as a reason to walk away,
although the jeweler says it is protected under more general
terms.
Louis Vuitton's owner is now trying three potential exit routes.
As well as an MAE, LVMH says that Tiffany has been so badly run
since the crisis began that it failed to keep up its side of the
bargain. The jeweler paid a generous dividend in the first and
second quarters when most other luxury brands slashed theirs. It
also closed its U.S. stores in the early days of the Covid-19
crisis, before it legally needed to do so -- one of the arguments
that private-equity firm Sycamore Partners used earlier this year
as it tried to wriggle out of an agreement to buy the Victoria's
Secret brand. LVMH's third hope is a now-infamous letter from a
French government minister asking the company to delay the deal's
closure.
The Delaware court hearing the case has a reputation for holding
companies to what they signed up for. If the judge forces LVMH to
press ahead with the transaction, it will have to integrate Tiffany
with a lot of bad blood on both sides. The U.S. jeweler's current
management team would very likely have to be replaced. Admittedly,
hiring top talent has never been an issue for the French luxury
giant.
It also will be hard to convince LVMH's minority shareholders
that completing the deal at the current price would be anything but
a disaster -- particularly now that the French company has publicly
aired why it thinks Tiffany's future prospects are "dismal." As
LVMH digs deeper for reasons to walk away, it is simultaneously
raising the stakes.
Write to Carol Ryan at carol.ryan@wsj.com
(END) Dow Jones Newswires
September 29, 2020 09:25 ET (13:25 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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