French luxury goods company LVMH is reportedly exploring options to renegotiate its $16.2 billion acquisition of Tiffany & Co, as the retail industry continues to grapple with the impact of the coronavirus pandemic and social unrest in the US. LVMH CEO Bernard Arnault has been in discussions with advisors on potential strategies to persuade Tiffany to lower the agreed deal price of $135 per share. Sources suggest that Arnault may argue that Tiffany has breached its obligations under the merger agreement. However, it remains unclear whether LVMH will take this course of action and what arguments it may put forth.
Tiffany, on the other hand, maintains that there are no grounds for a renegotiation and insists it is complying with the financial covenants of the merger agreement. The company recently announced a quarterly dividend and anticipates remaining in compliance. It is important to note that LVMH has not yet requested Tiffany to reopen negotiations and has not finalized a strategy for pursuing a price cut. Both LVMH and Tiffany declined to comment on the matter.
Despite concerns about potentially paying too much for Tiffany, Arnault still believes in the strategic benefits of the acquisition. Acquiring Tiffany would give LVMH a greater share of the lucrative US market and expand its presence in the thriving jewelry sector of the luxury goods industry.
Should Tiffany reject LVMH’s proposal to reopen talks, the dispute could escalate to the Delaware court system. A contentious end to the deal would make it more difficult for LVMH to pursue another acquisition of Tiffany in the future. It is worth noting that several acquirers have either terminated or renegotiated deals in the aftermath of the pandemic, such as private equity firm Sycamore Partners, which abandoned its plan to acquire a majority stake in Victoria’s Secret from L Brands Inc.
Overall, the potential renegotiation of the LVMH-Tiffany deal highlights the ongoing challenges facing the luxury goods industry in these uncertain times. As companies navigate the effects of the pandemic and social unrest, careful consideration of strategies is crucial to ensure favorable outcomes for their businesses.