LVMH May Refuse To Buy Tiffany & Co.
French luxury goods manufacturer LVMH (Moet Hennessy Louis Vuitton) will not be able to complete the deal to buy American Tiffany&Co for $16 billion, according to the agreement that was concluded in November 2019, according to a press release from LVMH.
The reason for this decision was a request from the French Ministry of Foreign Affairs, which asked the company to postpone the purchase of Tiffany until 2021 due to the threat of duties on French goods in the United States. Besides, as noted in the message, Tiffany itself submitted a request to LVMH to postpone the completion of the transaction to December 31 of this year.
"Based on these elements and knowledge of the initial results of the legal analysis conducted by LVMH consultants, the Board has decided to comply with the merger agreement signed in November 2019, which in any case provides for a closing deadline of no later than November 24, 2020, and officially declares that in its current form, LVMH will not be able to complete the acquisition of Tiffany & Co," the company said.
Shares of Tiffany are down almost 9% in preliminary trading on the NASDAQ after news of possible deal failure. LVMH securities lose 1% in price.
LVMH is the world's largest manufacturer of luxury goods (75 brands, including Louis Vuitton, Christian Dior, Moet & Chandon, Bulgari). Tiffany is a legendary brand in the United States with a 183-year history, employing 14,000 people and selling its jewelry, watches, and accessories through 300 boutiques. Sales of the Tiffany brand alone are comparable to the entire LVMH jewelry and watch division (including the Bulgari, Chaumet, Fred, Hublot, and TAG Heuer brands; watches and jewelry are also produced under the Christian Dior and Louis Vuitton brands). In 2018 it provided 9% of LVMH's total revenue of 46.8 billion euros. Tiffany achieved record net sales of $4.4 billion and net income of $586 million in 2018, the company said in its annual report.
LVMH and Tiffany announced the deal on November 25 last year. The agreement was reached after several weeks of negotiations. According to European media reports, initially, Bernard Arnault, the owner of LVMH, offered $14.5 billion, or $120 per share, for the American company. Tiffany & Co. shareholders demanded $140 per share. As a result, the parties agreed on $135 per share or $16.2 billion for the entire company.
Buying Tiffany would allow LVMH to significantly increase competition with the primary player in the jewelry and watch market-Richemont, which owns the jewelry brands Cartier, Van Cleef & Arpels, and Buccellati.
After a succession of events which undermine the acquisition of Tiffany & Co, the Board of LVMH met to review the situation relating to the contemplated investment in light of these recent developments.
The Board learned of a letter from the French European and Foreign Affairs Minister which, in reaction to the threat of taxes on French products by the US, directed the Group to defer the acquisition of Tiffany until after January 6th, 2021. Furthermore, the Board noted Tiffany & Co.’s requested to extend the “Outside Date” in the Merger Agreement from November 24th to December 31st, 2020.
As a results of these elements, and knowledge of the first legal analysis led by the advisors and the LVMH teams, the Board decided to comply with the Merger Agreement signed in November 2019 which provides, in any event for a closing deadline no later than November 24th, 2020 and officially records that, as it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co.