When it was first announced, luxury analysts heralded the impending acquisition of the US jewelry giant Tiffany & Co. by French luxury behemoth LVMH as one of the largest, at $16.2 billion, and most significant in the industry’s history. It was supposed to showcase the business prowess of France’s wealthiest business magnate, Bernard Arnault, and was a feather in the cap for one of the most iconic American brands. But it appears LVMH (parent company of Louis Vuitton, Dior and more) is pulling out of the deal and won’t be having ‘Breakfast at Tiffany’s’ anytime soon.
The deal was struck last November with a mandated closing date of November 24, 2020. According to reports, Tiffany requested to delay the closing until December 31, 2020. Then, LVMH claimed the French government requested that it delay the deal until January 6, 2021, due to the tariff dispute between the United States and France.
LVMH now says it will not complete the transaction at all.
So, really, are they arguing about an extra week to close the deal? Doubtful. The macroeconomic landscape is entirely different now from when the deal was initially struck. As you may recall, back in June 2020, LVMH shareholders expressed concern about, among other things, the deal in light of the pandemic and its effects on sales and revenues (Read: No Longer Certain LVMH Will Buy Tiffany & Co).
Even then, we speculated that this was an attempt to force down the price of the acquisition, as the world had significantly changed since November 2019, and naturally, so too did Tiffany & Co.’s financial outlook. According to Bloomberg, Arnault and a small team tasked with managing the deal considered making the acquisition by buying Tiffany & Co.’s’ stock on the public market, likely for well under the $135 per share figure agreed to last year. At the time of writing, Tiffany shares trade for $113, a 16% discount to the agreed upon price. Knowing Arnault rejected even that option, it seems unlikely the deal is going to happen for anything less than a massive markdown, possibly under $100 a share.
So where does this leave the parties now? In a recently filed lawsuit in Delaware, Tiffany claims LVMH breached its obligations to seek regulatory antitrust approvals on the deal (including the EU and Taiwan) and is intentionally delaying. LVMH announced it will not only defend itself but will sue Tiffany for mismanagement, dishonesty and defamation. Given Arnault’s proximity to powerful politicians in Paris, the French government appears poised to take LVMH’s side in any international dispute. In any acquisition, the power lies with the acquirer; after all, the money is in their accounts. Unless something dramatic changes, we don’t see LVMH pulling out their checkbook anytime soon, so it looks like the engagement is off. We’ll keep you posted on any further developments (of which there are sure to be many), stay tuned!