Deluxe Dispute: LVMH & Tiffany sue each other following failed takeover bid

October 27, 2020

2 min read

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What's going on here?

The $16.6bn takeover deal has come to a halt after Louis Vuitton Möet Hennessy (LVMH) and Tiffany sued each other.

What does this mean?

LVMH agreed to purchase Tiffany in November 2019 for the price of $16.6bn (to see our article on that, click here). The agreement began to erode shortly after the pandemic hit, which saw Tiffany’s shares drop from $135 per share to just $114.

The two lawsuits represent the culmination of a slowly brewing legal battle between the two companies over what was on track to become the luxury sector’s biggest deal. LVMH submitted a lawsuit that alleges Tiffany mishandled its business during the Covid-19 pandemic so poorly it left the luxury giant no choice but to reconsider the takeover bid entirely.

Tiffany responded with a lawsuit that seeks to force LVMH to respect the original merger agreement and finish the takeover. The US jeweller alleged LVMH was purposely stalling the deal to obtain a better price.

What's the big picture effect?

The companies’ legal spat has dual implications. It is firstly an illustration of trade tensions between the United States and France. Washington threatened to impose extra tariffs on French goods from the 6 January 2020 because of a proposed tax on digital companies. The French government wrote to LVMH and requested that they delay the acquisition in an attempt to persuade the US to drop the tariff.

The French government’s intention is questioned by both Tiffany and sceptics, who consider its intervention a pretext. To them, this represents an attempt from Bernard Arnault, LMVH’s billionaire chairman and primary shareholder, to pressure Tiffany into renegotiating the takeover price. Both the French government and LVMH deny these allegations.

Lawyers working in mergers and acquisitions have had their workloads significantly reduced because of the pandemic. The M&A market significantly contracted, and there are no plans to undertake serious expansions just yet. The uncertainty brought out by the outbreak has forced buyers to delay any attempt of purchasing or taking over companies. This can be compared to the reduction of the M&A market following the burst of the dot-com bubble in 2000 and the recession of 2007-2009. The contraction is much more evident in the UK, where looming economic tensions brought about by Brexit have been heightened by the pandemic. Both the US and China have seen a boom in investment during this time, with the UK slowly trudging behind evidenced by Hut Group’s IPO (to see our article on that, click here). 

However, Forbes identifies important differing factors currently shaping the M&A pool. Buyers and sellers have to adapt to the change to the remote environment which is here to stay. Due diligence and regulatory measures are forced to change due to travel restrictions.

LVMH’s attempt to ditch the takeover will go in front of the judge in January 2021, so it remains to be seen what the impact of the pandemic and the French government will have on what was scheduled to be the luxury sector’s biggest deal ever. 

Report written by Andreea Dicu

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