LVMH, the renowned French luxury goods conglomerate, has announced its decision to abandon its $16 billion takeover of Tiffany, marking the end of a deal that has lost its appeal amidst the COVID-19 pandemic. This move paves the way for a potential bitter battle between the two companies, as Tiffany has taken legal action in an attempt to enforce the agreed-upon deal.

LVMH, led by billionaire Bernard Arnault, stated that it received a letter from the French foreign ministry, requesting a delay in the acquisition due to the threat of additional US tariffs on French products. However, LVMH’s finance chief, Jean Jacques Guiony, dismissed the letter as unsolicited and made it clear that it was not a pretext to withdraw from the deal. The COVID-19 pandemic has had a significant impact on the luxury industry, leading to a decline in sales and raising concerns about the valuation of the deal. Guiony also expressed discontent with Tiffany’s recent management performance, describing it as “lackluster”.

In response to LVMH’s withdrawal, Tiffany has filed a lawsuit in Delaware, where the company is registered, in an effort to enforce the previously agreed-upon deal. The lawsuit accuses LVMH of intentionally delaying the completion of the takeover and seeking to renegotiate the merger price. Tiffany has refuted LVMH’s suggestion that it had breached its obligations under the merger agreement or that the transaction was inconsistent with its responsibilities as a French corporation. The news of LVMH’s withdrawal resulted in an 8.5% drop in Tiffany’s shares in New York, significantly below the $135 per share offered by LVMH.

The luxury industry as a whole is currently grappling with an unprecedented decline in sales, primarily due to the impact of the pandemic. Revenue projections indicate a potential decrease of up to 35% this year, and it may take until 2022-2023 for revenues to reach pre-pandemic levels. When the initial deal between LVMH and Tiffany was announced, LVMH aimed to revamp Tiffany’s brand through investments in store renovations and new collections. However, Tiffany’s global sales experienced a 29% drop in the three months leading up to July, falling short of expectations. In addition, LVMH’s watches and jewelry division also underperformed in the first half of the year.

Ultimately, the fate of the LVMH-Tiffany deal now lies in the hands of the courts as Tiffany seeks to hold LVMH accountable for fulfilling the acquisition as previously agreed upon. The outcome of this legal battle will carry significant implications for both companies and the luxury industry as a whole.

Useful links:
Reuters article on LVMH-Tiffany court battle
Business of Fashion article explaining the LVMH-Tiffany court battle