UPDATE: September 10, 2020: In a scathing rebuttal on Thursday, LVMH said it "was surprised by the lawsuit filed by Tiffany." The French luxury conglomerate called the action "totally unfounded" and "defamatory," and accused Tiffany of preparing its Wednesday legal action "a long time ago."
The Paris-based company said it would vigorously defend itself in court, and file a legal challenge of its own. LVMH also added to its reasoning for withdrawing from the companies' $16.2 billion merger agreement, saying it has "had the opportunity to examine the current economic situation of Tiffany and its management of the crisis."
LVMH said the jeweler's performance in the first half of the year and its outlook "are very disappointing, and significantly inferior to those of comparable brands of the LVMH Group during this period," and serve as a rationale for abandoning their deal. Tiffany revenue in the first half of the year fell 37% while sales at LVMH's watch and jewelry business fell 38% in a comparable period.
Tiffany & Co. on Wednesday said it has sued LVMH Moët Hennessy-Louis Vuitton in the Delaware Chancery Court alleging a breach of their merger agreement and refuting the conglomerate's reasoning.
Earlier that day LVMH announced in a press release that it had concluded it would "not be able to complete the acquisition of Tiffany & Co." The French luxury house in November agreed to buy the U.S. jeweler for about €14.7 billion or $16.2 billion.
In nixing the merger, LVMH blamed Tiffany's delay last month of the "outside date" to close the deal plus a direction from the French European and Foreign Affairs Minister to delay it until after Jan. 6, 2021. The French government had cited "threat of taxes on French products by the US," according to LVMH.
Two luxury houses that had found enough common ground to announce their tie-up last November — widely viewed as favorable to both — are now battling in court and in the press.
LVMH CEO Bernard Arnault once called Tiffany "an outstanding addition to our unique portfolio of luxury brands," while Tiffany CEO Alessandro Bogliolo has said the merger would "provide further support, resources and momentum" to the American jeweler's "key strategic priorities to drive sustainable long-term growth."
The mutual admiration has been replaced. Tiffany, for example, dismissed LVMH's revelation that the French government had asked it to delay its plans, saying it refutes the suggestion that their merger "is in some way inconsistent with its patriotic duties as a French corporation."
Board chairman Roger Farah went further, saying in a statement, "there is no basis under French law for the Foreign Affairs Minister to order a company to breach a valid and binding agreement."
Farah also called "LVMH's unilateral discussions with the French government without notifying or consulting with Tiffany and its counsel ... a further breach of LVMH's obligations under the Merger Agreement."
Tiffany's press release provided more details than LVMH's statement, alluding to the French company's "baseless, opportunistic attempts to use the U.S. social justice protests and the COVID-19 pandemic to avoid paying the agreed price for Tiffany shares."
The U.S. company also defended its previous extension of the outside date, pinning it on what it described as LVMH's delays in applying for antitrust clearance in certain countries. Those delays also breach their agreement, according to Tiffany's release, which noted that even the new outside date is now just three months away.
"LVMH has left us no choice," Farah said of the lawsuit.
The mutual benefits to the deal haven't necessarily dissipated, but the price LVMH is willing to pay may have been lowered by new realities. Credit Suisse analyst Michael Binetti in emailed comments suggested the French company is "probing loopholes after agreeing to a top-of-cycle price that could've been lower in black swan pandemic aftermath," adding that "Reflects poorly on [LVMH's] work to determine price based on [Tiffany's long term] earnings power."