For all the debate last year about LVMH’s acquisition of Tiffany & Co., the purchase made a lot more sense following COVID-19. Like many companies, Tiffany could use strong financial backing during tough times.
However, last week, LVMH made clear it doesn’t want to be Tiffany’s safety net. It unilaterally canceled the $16.2 billion deal, following a French government request to postpone it to January, to give that country more leverage in its trade war with the United States. Since January falls outside the deal’s November closing date, LVMH declared the deal dead.
Not everyone bought this logic. For one, French government sources called the request nonbinding. For another, the cancellation “deprives France of its bargaining chip,” said Wall Street Journal reporter Matthew Dalton. In other words, by killing the deal, LVMH also killed the reason for the request.
Then, last week, Bloomberg reported that LVMH chairman and CEO Bernard Arnault first reached out to French officials, seeking help to make the deal go away. Arnault, considered Europe’s richest man, “initially sought support from the finance ministry, which rejected him, before going to the foreign ministry,” the report said.
LMVH staunchly denied the story. “Are you seriously suggesting that we procured the [government] letter?” asked chief financial officer Jean-Jacques Guiony on a conference call, as reported by WWD. “It was fully unsolicited.” The local press believes otherwise. “LVMH seems to be organizing a sort of merger with French diplomacy in its sole interest,” declared one French newspaper.
The controversy is just one of a number of headaches that has plagued LVMH since it scuttled the purchase. On Sept. 9, soon after LVMH dropped its bomb, Tiffany sued the luxury giant in the Delaware Court of Chancery, a move that reportedly made Arnault feel “insulted and angry.”
Tiffany’s 114-page complaint is full of allegations detailing how the deal came together and eventually fell apart:
– LVMH made its first unsolicited bid for Tiffany on Oct. 15, one day before Tiffany’s board meeting—propitious timing that apparently raised eyebrows. “The dates of meetings of Tiffany’s board of directors are not publicly disclosed, and are generally known only to Tiffany’s directors and the top management of Tiffany,” said the filing.
– During the negotiations, LVMH was so eager to buy Tiffany it conducted just five days of due diligence and submitted five bids in total, including three in one day.
– Then came COVID-19. Business tanked around the world. After Tiffany’s stock price fell in March, LVMH asked if it could buy shares on the open market, at a lower price than the $135 a share it agreed to in November. Tiffany responded this would have to be publicly disclosed. LVMH backed off. Tiffany executives saw this as an indication that its once-besotted suitor was getting cold feet.
– By June, COVID-19 had spread throughout the United States, and protests filled the streets—forcing Tiffany to temporarily shut its stores. All of which, LMVH suggested, left Tiffany more exposed than other retailers, as “it operates a United States-centric business,” the filing said.
– Things got worse from there. After the deal was signed, the two companies’ executives spoke regularly. By June, the informal chats had ceased, and LVMH was giving Tiffany the “corporate cold shoulder.” That same month, LVMH issued a statement saying it was taking a fresh look at the deal.
– Tiffany began to suspect that LVMH was looking for a way out. LVMH “drag[ged] its feet” when asked for responses needed for antitrust clearances, Tiffany claimed. Guiony blamed the delays on COVID-19, which, he snarked, “Tiffany must have heard of.”
Tiffany’s complaint said that LVMH has “made it clear” it still wants to buy the retailer, it’s just angling for a better price. And while many analysts agree, Guiony said it has never asked to renegotiate, and the thought “never crossed our mind.”
For now, the two parties seem headed for the courtroom, rather than the negotiating table. LVMH has threatened a countersuit, and its statement offered a fresh reason for backing out: It found Tiffany’s first-half sales “disappointing.” The retailer responded they were better than projected and par for the COVID era.
Even if it’s true that Tiffany performed badly during the pandemic, that’s a reason to clean house, not cancel the sale. This is the same brand executives repeatedly praised in November.
There are dangers here for both parties. One journalist wrote that LVMH—which has acquired more than 70 brands in four decades—might see its dealmaking rep “take a hit” if this deal collapses. Future targets might think twice when Arnault comes knocking.
Tiffany claimed it was already on guard. “Tiffany was aware of Arnault’s reputation and his ruthless approach to acquisitions,” the complaint said. “[H]is ‘playbook’ has been described as ‘ousting founders, dividing families, or driving a wedge between business partners.'”
Which raises the question: If the directors truly believed that, why would they want him to buy their company—then or now?
And yet, amazingly, Tiffany still wants the deal to happen and has asked the court to force LVMH to abide by its terms. It may get its wish. “Delaware judges have only rarely allowed a buyer to walk away from an agreed deal,” said the Financial Times.
If that can’t happen, Tiffany has requested damages. That might be a far better outcome.
For starters, it’s still not clear what LVMH had planned for its new jewel. Arnault said he wanted to make Tiffany a “little bit French,” likely meaning more exclusive.
But that’s not what Tiffany’s all about. Following “a European Louis Vuitton or Christian Dior luxury-brand model [could] be a huge mistake” for Tiffany, wrote Pam Danziger in Forbes. “It undermines the uniquely American heritage and values Tiffany stands for.”
Post-acquisition, Guiony told analysts he didn’t expect many changes in Tiffany’s strategy or direction, but LVMH would nurture it with “time and capital.”
That drew this response from a JCK reader:
I worked for an LVMH company and the story here is not what I experienced. They did not invest in the company. You were on your own to generate investment dollars. They worked like a typical equity company. You were on your own. It is a challenging environment. If you did borrow from the LVMH piggy bank there was a cost to your bottom line.
Perhaps that was not how LVMH originally planned to run Tiffany. But it could be more likely now, if the deal is forced down its throat. Tiffany shouldn’t be saddled with an unhappy owner that believes it overpaid. The brand needs to be beefed up, not bled out.
This acquisition may be a boon for Tiffany’s shareholders. But its directors, executives, and attorneys are supposed to be stewards of the 183-year-old brand. They need to consider not only Wall Street’s interests but those of its employees, as well as the brand’s long-term future. Tiffany is a rare and special company. Now that LVMH has lost its ardor, Tiffany shouldn’t be thrown to the “wolf in cashmere.”
LVMH is not the first acquisition-happy colossus whose reach may have exceeded its grasp. At least it made that determination before the sale was completed, rather than after.
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