LVMH, Tiffany Engage In Luxurious War Of Words

Things are getting a bit uncivilized in the spat between LVMH and Tiffany & Co. The two ultra-high-end brands were supposed to be part of the same happy family after LVMH agreed to buy Tiffany earlier this summer, but the deal has dissolved into courtroom battles and public recriminations. In the balance lies the future of one of retail’s truly iconic luxury brands.

LVMH said Tuesday (Sept. 29) it had filed a countersuit against Tiffany as it tries to reconfigure or even abandon a $16.2 billion takeover. The suit, filed Monday in Delaware, says that LVMH “continues to have full confidence in its position that the conditions necessary to close the acquisition of Tiffany have not been met.”

The pandemic apparently has had a lot to do with LVMH’s decision. It tried to scrap its acquisition in early September, when LVMH said it would not complete the acquisition of Tiffany “as it stands.” In the suit on Monday, LVMH mentioned the pandemic saying that a “material adverse effect” has now occurred. It also criticized Tiffany’s “mismanagement of its business.”

“For instance, Tiffany paid the highest possible dividends while the company was burning cash and reporting losses. No other luxury company in the world did so during this crisis. There are many examples of mismanagement detailed in the filing, including slashing capital and marketing investments and taking on additional debt,” LVMH’s statement Tuesday said.

LVMH’s statement was hardly out for an hour before Tiffany fired back. “LVMH’s specious arguments are yet another blatant attempt to evade its contractual obligation to pay the agreed-upon price for Tiffany,” said Tiffany Board of Directors Chairman Roger Farah. “Tiffany has acted in full compliance with the Merger Agreement, and we are confident the Court will agree at trial and require specific performance by LVMH. Had LVMH actually believed the allegations made in its complaint, there would have been no need for LVMH to procure the letter from the French Foreign Minister as an excuse for its refusal to close.”

Tiffany also fired back against LVMH’s claim that the pandemic constituted a Material Adverse Effect. It pointed out that it had just one single quarter of losses before returning to profitability in Q2 and projects fourth-quarter earnings in 2020 greater than those in the same period in 2019.

“This is the exact opposite of LVMH’s unsupported claims that the ‘Pandemic has devastated Tiffany’s business’ and that ‘Tiffany’s recent woes are just the beginning of its troubles,’” said Tiffany in a statement. “Nothing alleged by LVMH has come close to meeting the MAE definition in the Merger Agreement, which excludes all ‘changes or conditions generally affecting the industries in which [Tiffany] operate[s]’ and ‘general economic or political conditions.’”

Up next? The two sides go to trial in January in Delaware. “The Delaware court hearing the case has a reputation for holding companies to what they signed up for,” says The Wall Street Journal. “If the judge forces LVMH to press ahead with the transaction, it will have to integrate Tiffany with a lot of bad blood on both sides. The U.S. jeweler’s current management team would very likely have to be replaced. Admittedly, hiring top talent has never been an issue for the French luxury giant.”