LVMH Claims Right to Exit Tiffany Deal

RAPAPORT… LVMH has filed a countersuit against Tiffany & Co., claiming a legal right to pull out of the companies’ tie-up due to Covid-19 and the US jeweler’s “mismanagement” of the crisis.

The pandemic constitutes a “material adverse effect” that allows LVMH to renege on the $16 billion takeover deal, LVMH argued Tuesday. The catastrophic period will have serious and long-term effects on Tiffany, the French company added.

Tiffany flouted its obligation to operate in the ordinary course of business during the pandemic, for example by paying maximum dividends to shareholders while incurring losses, LVMH alleged. The luxury group also introduced a key argument in the battle: In the takeover agreement, Tiffany failed to exclude a pandemic from the scenarios under which LVMH could exit the deal. These clauses, known as carve-outs, were common even before Covid-19, LVMH pointed out.

“Hundreds of other merger agreements executed in the decade preceding the [LVMH-Tiffany deal] contained express pandemic or epidemic carve-outs,” LVMH argued. “The pandemic, whose effects are devastating and lasting on Tiffany, has irrefutably caused a material adverse effect.”

The move is the latest phase in a public dispute between the two retailers over the aborted deal. Tiffany sued LVMH earlier this month in the Delaware Chancery Court to force it to go ahead with the takeover.

LVMH initially pulled out of the acquisition on September 9, claiming the French government had asked it to delay the transaction until after the final deadline, thereby killing the agreement.

Tiffany said LVMH was attempting to stall the deal so it could renegotiate a lower price, and sued its sparring partner in Delaware in a case that’s set to go to trial in January.

“LVMH’s specious arguments are yet another blatant attempt to evade its contractual obligation to pay the agreed-upon price for Tiffany,” Tiffany chairman Roger Farah said in a response Tuesday. “Tiffany has acted in full compliance with the merger agreement, and we are confident the court will agree at trial.”

Image: Tiffany engagement ring and blue boxes. (Shutterstock)