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Tiffany, LVMH Legal Tussle Continues on Stalled Merger Talks

Zacks Equity Research
·4-min read

Tiffany & Co.’s TIF legal tangles with France-based luxury goods group —  LVMH Moet Hennessy Louis Vuitton SE or LVMH — seems far from getting resolved anytime soon. The companies have been contradicting each other’s claims for a while now, which has put the stalled merger agreement at risk.

In latest developments, LVMH reportedly countersued Tiffany in the Delaware Chancery Court. LVMH claims that Tiffany’s financial mismanagement during the COVID-19 pandemic permits the company to walk away from the proposed $16.2-billion deal.

Earlier this month, Tiffany had filed a suit against LVMH, when the latter intended to scrap the merger deal. Tiffany had also requested to expedite the lawsuit, claiming that LVMH was purposely stalling the deal, to avoid paying the agreed price. On Sep 18, LVMH had requested the court to put a hold on its ongoing trial with Tiffany for about six or seven months. However, on Sep 22, the court granted Tiffany’s motion to expedite its lawsuit against LVMH. A four-day trial, beginning Jan 5, 2021, was set by the court.

Let’s take a closer look at LVMH’s latest move and the claims put forth by both the companies.

Merger Agreement Soured by Legal Battle

Per sources, LVMH in its latest countersuit claims that Tiffany had not included a pandemic carveout in its Material Adverse Effect clause of the merger agreement. LVMH also argued that Tiffany breached its obligations by paying high dividends amid the pandemic. To top these, LVMH highlighted that it has continued to remain hesitant to proceed with the deal owing to a request from the France government to delay the transaction until next year, on the grounds of tariff threats.

Meanwhile, Tiffany has not provided any statement in response to LVMH’s recent claims. Nevertheless, we note that the well-known jewelry retailer has continued to condemn LVMH’s efforts to shelf the merger deal. Earlier on, Tiffany alleged that LVMH is seeking multiple excuses to avoid completing the deal on prior terms. The company criticized LVMH’s move to withdraw itself from the contract based on the request from the government of France. It has also disapproved LVMH’s claims regarding a Material Adverse Effect. In fact, Tiffany highlighted that LVMH has not met its obligations of the contract by failing to obtain antitrust clearance in a timely manner.

Tiffany had also asserted that it has complied with all provisions of the agreement. In its earlier statement, this Zacks Rank #3 (Hold) company acknowledged that its business fundamentals and financial performance have been stable, despite the pandemic.

 

Wrapping up

We note that Tiffany has been defending its stand on the case and is looking forward to its completion on the previously-agreed terms. However, LVMH is not willing to proceed with the deal, as it claims that the conditions necessary to close the acquisition have not been met. That said, it now lies in the hands of the court to determine the fate of this troubled acquisition deal.

Tiffany’s shares have lost 4.3% compared with the industry’s decline of 2.4% in the past three months.

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