Louis Vuitton Sued After Reneging on $16 Billion Merger

CEO of LVMH Bernard Arnault presents the group’s 2019 results during a Jan. 28 press conference,in Paris. (AP Photo/Thibault Camus, File)

(CN) — American jeweler Tiffany & Co. filed a lawsuit Wednesday against French company LVMH Moët Hennessy Louis Vuitton after the luxury goods giant announced it was backing out of the parties’ engagement, a $16.2 billion merger.

In a press release Wednesday, Louis Vuitton cited high tensions between France and the United States in it will breach the contract. According to the release, LVMH board members recently received a letter from the French European and Foreign Affairs minister that requested the group defer its acquisition of Tiffany until after Jan. 6, 2021, “in reaction to the threat of taxes on French products by the US.” After receiving the letter, the board decided not to comply with the merger agreement signed in November 2019. While the original closing date was set to be no later than August 24 the parties’ agreed to push this date back to November 24 earlier this year.

“As it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co,” the company’s announcement continues.

The foreign dispute in question stems from a trade dilemma between Paris and Washington wherein France, among other countries like the U.K., Italy and Spain, is moving to tax digital media companies like Alphabet and Facebook. In response, the Trump administration has said it will retaliate by placing tariffs on goods from any countries that implement these taxes. 

Thomas Schwartz, a history professor at Vanderbilt University, hypothesized Wednesday that Louis Vuitton was using foreign relations as an excuse for the fallout.

“Governments do get involved with business decisions if they receive enough political pressure or there is a significant domestic political cost to approving an arrangement,” said Thomas Schwartz, a history professor at Vanderbilt University, in an email Wednesday, noting that the move may reflect the “politics of the arrangement” more than the politics of the companies’ respective nations.

Tiffany & Co. speculated the same Wednesday in its own press release announcing its breach of contract suit in Delaware’s Court of Chancery. According to the 114-page suit, the company seeks to expedite legal proceedings to obtain a ruling prior to the contract’s November 24 closing date and hopes the court will rule that LVMH must comply with its obligations and complete the transaction on the previously agreed upon terms. 

The suit stipulates that “unless and until the transaction closes” the luxury jeweler suffers daily harm.

“Tiffany has upheld a strong brand image for more than 180 years. “Before LVMH’s approach, Tiffany was not seen by the market as ‘for sale,’” the suit reads. “Tiffany agreed to enter into the Merger Agreement with LVMH based on LVMH’s representations and assurances about the certainty of the deal.”

In its statement, company executives accused Louis Vuitton of using the letter as an excuse to cut its losses as the demand for luxury goods have dropped sharply in the midst of the pandemic. 

“We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms,” Tiffany Chairman Roger Farah said in a statement. “But the simple facts are that 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 questioned why the French effort to retaliate against the U.S. for proposing new tariffs has never before been announced or discussed publicly. “Furthermore, as we are not aware of any other French company receiving such a request, it is all the more clear that LVMH has unclean hands,” he continued.

LVMH’s chief financial officer, Jean-Jacques Guiony told the Washington Post it considered the French government’s request a legally binding order. The French foreign ministry didn’t immediately respond to a request for comment. 

While the contract between LVMH and Tiffany would have allowed Tiffany to buy its way out of the agreement with a termination fee of $575 million, LVMH had no such option.

When the merger deal was completed in November of 2019, LVMH paid $16.2 billion, or $135 per share — Tiffany’s all-time-high share price — for the company. As of Wednesday afternoon, following the failed merger announcement, Tiffany’s stock had fallen to $114.36. On Tuesday, the Tiffany’s stock closed at $121.82 per share. Tiffany’s suit bemoaned this effect, complaining in its suit that “failure of the merger has the potential to affect Tiffany’s stock price, and undervalue significantly the Tiffany brand going forward for investment or potential transactions with other companies.”

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