BUSINESS | Luxury Goods Giant LVMH Cancels $14.5B Deal For Tiffany

Luxury goods giant LVMH is ending its takeover deal of jewelry retailer Tiffany & Co., saying the French government had requested a delay to assess the threat of proposed U.S. Tariffs.

Wednesday’s announcement came after the deal’s value had been eroded by wider industry troubles caused by the coronavirus pandemic.

The Paris-based conglomerate said that both the French government and Tiffany had requested that the closing of the deal be postponed by a few months. The French government, it said, wanted to assess the impact of the possible U.S. tariffs on French goods.

As a result, LVMH said, the $14.5 billion deal – which would have been biggest in the luxury market and was scheduled to close Nov.24 – will be canceled.

Tiffany replied that it’s suing to enforce the merger agreement, which was signed in November 2019. The New York company said LVMH’s argument has no basis in French law. Tiffany also said that LVMH hasn’t even attempted to seek the required antitrust approval from three jurisdictions.

‘We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms’, said Roger Farah, chairman of Tiffany in a statement.

Shares in Tiffany slid $7.85, or 6.4%, to close Wednesday at $113.96. those in LVMH, which owns 75 brands including Christian Dior, Fendi, Givenchy and Tag Heuer, were stable.

The deal’s value came under strain during the pandemic, which has caused retail sales to plunge around the world. Tiffany’s share price has been trading around $125 a share for weeks – below the $135 per share price that LVMH had agreed to play last fall, before the pandemic.

Back then, industry experts had said the deal made sense. Tiffany, known for its delicate jewelry, distinctive blue boxes and an Audrey Hepburn movie, had been trying to transform its brand to appeal to younger and more digital shoppers, and could have used an owner with deep pockets to help expand.

LVMH, led by billionaire Bernard Arnauld, had though the deal would strengthen its position in high-end jewelry and in the U.S. market. LVMH was also making  a bet on China’s economy, where Tiffany had been expanding its presence.

The pandemic threw all those assumptions and plans in doubt, and the threat of new tariffs between the U.S. and Europe was cited as a further complicating issue.

Before COVID-19, the global market for personal luxury goods was solid, reaching a record high of 307.1 billion (260 billion euros) in 2018 – a 6% increase from the year before, according to consulting firm Bain & Co. that sector slipped by 2.1.% to $331.0 (281 billion euros) last year, according to Bain estimates.

Last year, France sought to impose a tax on global tech giant including Google, Amazon and Facebook. The French tech tax is aimed to ‘establishing tax justice’. France wants digital companies to pay their fair share of taxes in countries where they make money instead of using tax heavens, and is pushing for an international agreement on the issue.

In response to the tech tax, the U.S. threatened to slap 100% tariffs on $2.4. billion of French products.

The two sides are a tense truce as France has said it would delay collection of the digital tax until December, parking the issue until after the next U.S. presidential election where Trump hopes to secure another four-year term.

In a news conference on Wednesday, French government spokesman Gabriel Attal confirmed that a letter was sent by French Foreign Minister Jean – Yves Le Drian to LVMH and referred to international talks about the U.S. tariffs as a ‘very important issue’.

‘The (French) government is neither naïve nor passive. We have objectives that we want to reach’, he said. He wouldn’t further elaborate and said that Le Drian is expected to express his views on the issue in the coming hours.

CEO Jean Jacques Guioy of the LVMH insisted in a phone interview with reporters that he letter received Sept.1 from the French government was legal and valid and left the group no choice.

Asked about lowering the price to keep the deal alive, he said that has not even been considered as there is no article in the contract that would allow that.

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