Jewellery is pictured in the window of a Tiffany & Co. store in the Manhattan borough of New York, on Sept. 10, 2020. Luxury goods purveyor LVMH said on Wednesday it had pulled its bid for Tiffany.CARLO ALLEGRI/Reuters
Tiffany & Co. hasn’t lost its cachet, except perhaps for the French company that had courted the storied jeweller with a US$16.2-billion takeover bid.
In the latest instance of a deal coming apart amid the COVID-19 pandemic, luxury goods purveyor LVMH said on Wednesday it had pulled its bid for Tiffany, citing mismanagement by its target and an unusual request for a delay from the French government.
On its surface, the situation bears some resemblance to other transactions laid low since the lockdowns began, such as London-based Cineworld Group Inc.'s scrapping of its $2.2-billion offer for Canadian theatre operator Cineplex Inc. in June. Other deals look shaky, including Air Canada’s $720-million takeover of Transat AT. Delayed three times, Transat said Thursday it requires more cash, but is unsure if Air Canada will consent to a bailout, as is required under the purchase agreement.
In the cases of Tiffany and Cineplex, both deals were struck in late 2019, a simpler time when stock market valuations were higher. Both involve companies that rely on consumers ponying up discretionary cash, and whose stocks tumbled well below the transaction prices during the coronavirus crisis. Also, each is headed for court as the intended targets seek redress from suitors they blame for slow-walking deals through various regulatory processes before finally leaving the table.
But there are important differences – not least the political pull at the disposal of LVMH chairman Bernard Arnault, head of the company known for such swish brands as Louis Vuitton, TAG Heuer and Veuve Clicquot. LVMH said it could not complete the transaction after the French government requested a delay on closing owing to a looming trade dispute with the United States. Adding to the intrigue, Bloomberg reported that Mr. Arnault had used his pull to seek such an order, though LVMH denied it.
Mr. Arnault appears to be using the situation to pull the plug on a deal that, for months, has looked way too pricey – even for a name known for trinkets and baubles coveted as the standard of opulence since the 19th century. The move follows an earlier extension of the close date.
In the case of Cineplex, Cineworld said its intended merger partner breached financial conditions and, pandemic or no, those failures rendered the deal null and void. Cineplex filed suit against Cineworld in Ontario Superior Court in July, claiming breach of contract. It was a case of “buyer’s remorse” after Cineplex’s stock tumbled well below the bid price as lockdowns were imposed and revenues dried up, Cineplex says.
Cineworld filed a statement of defence and counterclaim last week, saying Cineplex failed to meet conditions in the agreement to keep its debt below a $725-million ceiling and maintain payments to suppliers and landlords.
Tiffany has filed suit in Delaware in attempt to force LVMH to complete its deal, and makes clear it does not believe France is forcing its hand. It argues LVMH cannot use a material adverse event clause – an unforeseen event so negatively transformative that a deal no longer makes sense – or claim that Tiffany breached conditions as reasons to scrap the agreement. Tiffany also complains that LVMH had not even filed for antitrust clearance in some jurisdictions, including Europe, indicating it was stalling.
"We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms,” Tiffany chairman Roger Farah said in a statement. “But the simple facts are that there is no basis under French law for the foreign affairs minister to order a company to breach a valid and binding agreement.”
LVMH has promised a legal riposte. It says Tiffany mismanaged the COVID-19 crisis and called the jeweller’s first-half financial results “very disappointing, and significantly inferior to those of comparable brands of the LVMH Group.”
“It’s become clear that LVMH has been consistently looking for a price cut over the past number of months, and looking to apply pressure in any way it can get it in order to rehash the deal at a lower price,” said Julian Klymochko, arbitrageur and chief executive officer of Accelerate Financial Technology Inc.
Failing that, the luxury goods industry will see its biggest deal die as companies are hit by the massive drop in tourism and in-person shopping that support it. Tiffany’s share price has declined by 7 per cent over the past two days to US$114.36, well under the US$135 that LVMH had agreed to pay. Given the animosity emanating from both sides, Tiffany shareholders should have little comfort that the deal can get back on track.
Other companies that agreed to be bought out in better times have to take note there is a growing pandemic playbook being written setting out ways to kill deals. The real test is how the courts will interpret it.
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