Luxury goods conglomerate LVMH Moët Hennessy-Louis Vuitton SE (LVMH) said on Wednesday that it backed out of its $16 billion takeover of iconic jeweler Tiffany & Co. (TIF) because the French government requested a delay. That prompted Tiffany to file a lawsuit claiming that the luxury brand intentionally breached its agreement to carry out the deal.
One legal expert says if LVMH uses a France-U.S. tariff dispute as its defense for scrapping the deal, it’s unlikely to get much credence from the Delaware Chancery Court, where the action was filed. Tiffany alleges that LVMH used multiple maneuvers, in addition to fabricating a U.S.-French tariff dispute, to back out of the deal including failing to carry out its obligations to obtain antitrust clearance from the European Commission and other jurisdictions.
On Wednesday, LVMH published a statement saying that the French government had requested that the LVMH board move the closing date to after January 6, 2021 due to a threat of increased U.S. tariffs on French luxury goods.
A report published by Bloomberg Wednesday said that LVMH Chairman and owner Bernard Arnault solicited help from the French government to back out of the Tiffany deal. According to Bloomberg, while LVMH has publicly denied exerting pressure on the government, Arnault initiated efforts to seek support from the ministry of foreign affairs after an earlier effort directed towards the finance ministry was rejected.
According to Tiffany, it was not advised until Tuesday about the French government’s request to delay the transaction.
“[T]his supposed official French effort to retaliate against the U.S. for proposed new tariffs has never been announced or discussed publicly,” Tiffany said in a press release. “How could it possibly then be an effort to pressure the U.S. into revoking the tariffs? 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.”
Yahoo Finance requested comment from LVMH concerning Tiffany’s lawsuit, but did not receive a response before publication of this story.
Tiffany also expressed that COVID-19 challenges should not impact LVMH’s ability to carry out the antitrust approval process and said in its press release that under the terms of the companies’ merger agreement LVMH “assumed all antitrust-clearance risk and all financial risk related to adverse industry trends or economic conditions.”
University of Virginia professor of law Cathy Hwang said if Tiffany’s representations are true LVMH faces an uphill battle, as the Delaware court will likely look to the parties’ “material adverse effects” clause to weigh LVMH’s options.
“Almost no one has ever won a material adverse claim, or been able to back out of a deal for an MAE,” Hwang told Yahoo Finance. One reason the clauses fail, she said, is because they tend to be ubiquitous and too vaguely written.
Even so, the threat of future tariffs and a global pandemic may be cases of first impression for the court to consider.
Another wrinkle facing LVMH is Tiffany’s claim that the company failed to initiate approval proceedings to clear any antitrust hurdles. According to Tiffany, the deal poses no substantive antitrust concerns.
Because LVMH has yet to file for antitrust approval in three required jurisdictions — the European Union or Taiwan, Japan and Mexico — as of the initial closing date of August 24, 2020, Tiffany said it elected to extend the closing date to November 24, 2020.
Under European Union antitrust rules, companies must notify the EU Commission of any merger above certain currency thresholds, Yale Law School lecturer Nikolas Guggenberger told Yahoo Finance. Once a notification is filed the commission completes a one or two-phased investigative process, he said.
“The entire process depends on the collaboration of the companies that are involved,” Guggenberger explained, emphasizing that if the process is never initiated, a deal cannot move forward. “The framework foresees tight deadlines for the EU Commission to act, but a lack of cooperation on the companies’ ends can delay the process.”
Alexis Keenan is a legal reporter for Yahoo Finance and former litigation attorney.
Follow Alexis Keenan on Twitter @alexiskweed.
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September 10, 2020 at 06:17AM
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Tiffany’s claim that ‘LVMH has unclean hands’ in scrapped $16 billion deal may hold up in US court - Yahoo Finance
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