Tiffany sues LVMH for reneging on $16 billion deal as France steps in

Reuters PARIS/NEW YORK Sep 10, 2020, 02.43 PM(IST)

People walking past a Tiffany store in Shanghai, China. Photograph:( AFP )

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LVMH, led by billionaire Bernard Arnault, said its board had received a letter from the French foreign ministry asking it to delay the acquisition until Jan 6, 2021.

Tiffany & Co sued LVMH on Wednesday after the French luxury goods giant told the U.S. jeweler it could not complete a $16 billion deal to acquire it because of a French government request and the impact of the coronavirus outbreak.

LVMH, led by billionaire Bernard Arnault, said its board had received a letter from the French foreign ministry asking it to delay the acquisition until Jan. 6, 2021, given the threat of additional U.S. tariffs against French products.

This, LVMH argued, made it impossible to meet a contractual Nov. 24 deadline to complete the acquisition, adding it was not willing to extend the agreement further. The French state's intervention marked the latest twist in the attempt to combine some of the fashion world's most high-profile luxury brands.

"I am sure that you will understand the need to take part in our country's efforts to defend its national interests," France's foreign minister, Jean-Yves Le Drian, wrote to Arnault, according to an English translation of the Aug. 31 letter that Tiffany received from LVMH and that it published on Wednesday.

 "The deal cannot happen. We are prohibited from closing the deal," LVMH finance chief Jean Jacques Guiony told reporters on a conference call. Bloomberg News reported, citing a source it did not identify, that Arnault asked for help from the French government to pull out of the deal with Tiffany, but Guiony said the letter was unsolicited and came as a total surprise to LVMH.

A French government source said the letter had "political value" and was meant to alert LVMH to the risks of pursuing the deal just as France wrangles with the United States over trade tariffs - but it was advisory and not binding.

The White House did not respond to a request for comment on the French government's intervention in the deal. Analysts were skeptical about any attempt by France to use LVMH's bid for Tiffany as effective leverage in its trade dispute with the United States.

"The French government is certainly very active in defending the French national interest. But this has meant in most cases preventing acquisition of French companies," said Luca Solca, luxury goods analyst at Bernstein.

The pandemic's financial fallout has made the deal's price tag less attractive to LVMH. Tiffany's worldwide sales fell 29% to $747.1 million in the three months ended July 31, missing expectations of $772 million. Guiony on Wednesday called Tiffany's financial performance in recent months "lackluster."

It was not immediately clear whether LVMH was seeking to walk away from the acquisition of Tiffany, or use the hurdles facing the deal as leverage to renegotiate the price. Tiffany has so far resisted attempts to reopen price negotiations.

Tiffany's shares ended trading on Wednesday down 6.4% at $113.96, well below the $135 per share deal price, reflecting uncertainty among investors over whether the deal will go ahead and at what price.