Louis may not Breakfast at Tiffany’s after all: LVMH’s acquisition of Tiffany & Co falls through

June 18, 2020

3 min read

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What's going on here?

After doubts arose regarding whether LVMH’s (Louis Vuitton) acquisition of Tiffany & Co would still go ahead, on Friday 5 June it was stated that the conglomerate would refrain from renegotiating the acquisition.

What does this mean?

In November 2019, LVMH agreed to purchase Tiffany & Co (for more information, see our article on that here). At $135 per share, this amounted to a 16.2 billion USD takeover and LVMH’s biggest acquisition to date. However, the global pandemic and social unrest in the US have seen Tiffany’s share price slump to 114 USD per share. LVMH was reportedly concerned that Tiffany would not be able to cover its debts before the acquisition was due to complete in mid-2020. This would mean that LVMH would also be buying Tiffany’s debts upon the conclusion of the transaction.

 On Wednesday 3 June, it was reported that LVMH was exploring ways to reopen the negotiations, as well as ways in which it could pressure Tiffany into lowering the agreed deal price. LVMH reportedly considered arguing that Tiffany was in breach of their obligations under the acquisition agreement. Currently, it is thought Tiffany is in compliance with their obligations. However, LVMH will be watching closely, and will likely seize on any breach as grounds under the acquisition agreement to renegotiate terms. 

On news that the acquisition was in doubt, Tiffany’s shares closed down by nearly 9%.

What's the big picture effect?

A general slowdown in M&A (mergers and acquisitions) has been seen across the world as a result of the coronavirus pandemic. LVMH is not the only company taking a second look at its deals. Sycamore Partners last month walked away from a $525m deal to acquire a majority stake in Victoria’s Secret (for more information, see our article on that here). 

However, while LVMH appears to have concerns about overpaying for Tiffany & Co, the acquisition still holds strategic merit for the luxury conglomerate. This is because Tiffany is able to simultaneously grant the European LVMH a larger foothold in the US market, and expand its jewellery portfolio (which is the fastest-growing sector in the luxury goods industry). Tiffany itself presents an attractive asset, as it has the potential to be transformed from “affordable luxury” to highly exclusive. However, given that Tiffany was already in trouble at the time of the purchase agreement, the task of transforming it is all the more difficult now. There will need to be significant investment in its marketing and product range. This is likely why LVMH was seeking a lower price. 

Given the state of luxury retail at the moment (global sales of luxury goods are expected to fall by 35% this year), competitors such as Kering SA and Richemont may not step in if LVMH were to pull out with the aim of seeking a lower price. In any case, pulling out would be a risky strategy for LVMH as another deal would likely not be forthcoming. 

While the LVMH-Tiffany’s acquisition appears to be going ahead at the moment, this could change, and if that were the case, it would certainly not be the first or last corporate victim of the coronavirus-induced slump.

Report written by Julie Lawford

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