If you love it, put a ring on it. Like engagements, the closing of a deal is often cause for celebration and joy. Last November, LVMH cinched a deal to acquire Tiffany & Co. for an eye-watering $16.6 billion. Quite an expensive engagement indeed, the largest ever in the luxury sector. But, like a groom getting second thoughts before the ceremony, LVMH now squirms for a way out. Coronavirus, and the global pandemic it entailed, has shaken up the luxury goods industry. And the dalliance between Tiffany and LVMH is yet another high-profile casualty in the ongoing situation. What was once a cause for celebration has become a cause célèbre.
Tiffany & Co. is a seminal American brand, founded in 1837. Its signature robin’s-egg blue has achieved talismanic status. Its fame was cemented in the 1961 film Breakfast at Tiffany’s, starring Audrey Hepburn. And its flagship store on Fifth Avenue, right beside Trump Tower, is iconic. LVMH is no slouch either; a veritable titan in the luxury world, the LVMH portfolio boasts over 75 of the most renowned names in luxury, including Louis Vuitton, Dior, Givenchy, and Fendi. At its helm stands Bernard Arnault, its storied 71-year-old chairman.
Arnault coveted Tiffany. Acquiring the prized brand and presence would give LVMH an 18% global share in the luxury jewelry market. Neither is it the first time he has waded into a jewelry acquisition. LVMH’s 2011 purchase of Bulgari has reaped tremendous rewards, multiplying Bulgari’s profits several times over. When news of the Tiffany acquisition broke in late fall of last year, the move was met with widespread praise. Analysts hailed Arnault’s clever market positioning and concluded that the acquisition would do wonders for a dimming Tiffany. But whispers of dissent among Arnault’s circle of advisors suggested that all was not well. $135 a share was a steep price to pay for a stock that had, in August of that very year, traded at $80. It’s worth mentioning that pandemics were mere narrative tools in a Hollywood screenwriter’s toolbox last year, and not the disruptive reality of today.
Last summer, LVMH experienced its first jitters. The global pandemic had slammed Tiffany and Co. Net sales dropped precipitously 45% during the first quarter, and the company lost $65 million, compared to a gain of $125 million for the comparable timeframe last year. The LVMH portfolio, on the other hand, managed to float through the pandemic rather well, albeit not unscathed. All of a sudden, Tiffany looked much less appetizing than it did six months ago. But how could LVMH walk away from its arrangement? The contract was impenetrable: extenuating circumstances were confined, and the only way the agreement could unravel required a breach.
But a contract would not be enough to stop Bernard Arnault. The “wolf in cashmere,” earned his fearsome moniker, owing to his knife-edge tactics and insouciant ruthlessness. This was not his first bout either. His hardball, aggressive strategies netted over 40 deals, and formed LVMH into the largest luxury brand in the world – along with generating a sizable $80 billion dollar fortune for himself that tops Europe’s list of the rich. While his tactics have not resulted in perfect success stories (see, e.g., attempted acquisitions of Hermes, Gucci), he is undoubtedly a triumphant veteran of the luxury industry’s ferocious M&A market. And $135 per share for a tarnished Tiffany was too steep a price for Arnault to pay.
On June 2, 2020, WWD, an industry news source, dropped a bombshell article revealing that the French luxury giant was getting cold feet. LVMH cited a growing disinterest in the American market, attributable to not only the pandemic, but also to a rise in looting after the murder of George Floyd. The company also insinuated that Tiffany would breach the terms of its own borrowing facilities, a breach that would kill the deal immediately. Tiffany’s share price, until then buoyed by the LVMH takeover, slid as investors contemplated whether the engagement would matriculate. Tiffany fired back, of course, asserting that they were on solid financial ground and that the situation in America was stable. They were not about to let LVMH walk away from its promise.
Tensions finally reached a boiling point. An avid chess player, Arnault unleashed several moves that would culminate in Tiffany filing a lawsuit, and LVMH countersuing. Behind closed doors, Arnault reportedly still desired Tiffany, and wished for the deal to continue acrimoniously. Just not at $135 a share. Perhaps escalating their quarrel would bring Tiffany back to the bargaining table.
In September, the French government stepped into the fracas, with the French foreign minister claiming that, as part of a spat with the United States, the deal cannot go forward until President Trump implements customs duties. This would delay the deal past the exigent November 24th drop-dead deadline. Although LVMH vehemently denied it, Bloomberg reported that Arnault personally sounded the patriotic cri de coeur soliciting the French government’s aid.
In response, Tiffany filed suit in Delaware. Its allegations include other ways the luxury giant tried to sidestep the deal, such as slow-walking necessary antitrust clearance. Tiffany seeks the $135 share price or otherwise damages. This is a new venue for Arnault, and Delaware judges are not in the habit of letting people go once they sign an agreement to acquire a company. LVMH has vowed to fight back. Its central argument is that the coronavirus pandemic and the French government’s mandate constitutes a material adverse change. It also fired a broadside at Tiffany management, accusing them of neglecting the “ordinary course of business in distributing substantial dividends when the company was loss making and that the operation and organization of this company are not substantially intact.” Essentially, they called the management inept, irresponsible, or dishonest. The French firm filed a countersuit in Brussels, charging dishonest acts.
All of this places Tiffany’s management in a precarious place. As one pundit put it, “accepting a lower price will open Tiffany and the board to shareholder lawsuits. Then again, lawsuits will come if the deal doesn’t happen, too. But time is money, and Tiffany doesn’t have an endless supply of either. Settling for $115 a share today would beat the uncertainty on offer.” The two firms recently clashed over their Delaware court date. Tiffany filed for a fast-track date, with the hearings taking place on September 21st. LVMH responded rather tartly, stating that “Tiffany offers no reason why this court should move mountains and conduct a full-blown trial involving complex facts and international discovery in less than two months amidst a global pandemic.” Tiffany’s request was granted, an early first victory. But all the while, the November 24th deadline looms.
Ali Nayfeh is the Online Content Chair for Fashion for the Harvard Journal of Sports and Entertainment Law and a second-year student at Harvard Law School (Class of 2022).