Tiffany sues as LVMH backs out of $16bn deal

The French luxury giant withdrew as concerns grew about the threat of tariffs on European luxury goods being imposed by the US

LVMH, the owner of Louis Vuitton, backed out of a $16bn deal to buy Tiffany. Reuters

Tiffany is suing LVMH, the world's biggest luxury group, after the French conglomerate said it is abandoning a proposed $16 billion (Dh58.7bn) merger because of US tariffs slated to be imposed on French goods.

"LVMH is in breach of its obligations relating to obtaining antitrust clearance," Tiffany said in a statement on Wednesday.

In the lawsuit filed in a Delaware court the New York-based luxury jewellry retailer said it "refutes LVMH’s suggestions that it can avoid completing the acquisition by claiming Tiffany has undergone a Material Adverse Effect (MAE) or breached its obligations under the Merger Agreement, or that the transaction is in some way inconsistent with its patriotic duties as a French corporation."

Tiffany's shares fell as much as 15 per cent in pre-trading on Wednesday as LVMH issued its own statement.

"After a succession of events which undermine the acquisition of Tiffany & Co, the board of LVMH met to review the situation relating to the contemplated investment in light of these recent developments," the company said in a regulatory filing.

LVMH, run by Europe's richest man Bernard Arnault, said its board learned of a letter from France's European and foreign affairs minister which, "in reaction to the threat of taxes on French products by the US, directed the group to defer the acquisition of Tiffany until after January 6th, 2021".

"As a result of these elements, and knowledge of the first legal analysis led by the advisors and the LVMH teams, the board decided ... [it would] therefore not be able to complete the acquisition," the company said.

Tiffany said there was no contractual basis for LVMH to honor the request from the French government to refuse to close the transaction until January 6, 2021. Last month, it also extended the deal deadline by three months, to November 24. That led LVMH to say it retains the right to challenge the new closing date.

"Tiffany believes this latest development represents nothing more than LVMH’s most recent effort to avoid its obligation to complete the transaction on the agreed terms, not dissimilar from LVMH’s baseless, opportunistic attempts to use the US social justice protests and the Covid-19 pandemic to avoid paying the agreed price for Tiffany shares," it said.

The collapse of the agreement comes in the wake of a sharp downturn in the luxury goods industry globally as the Covid-19 pandemic led countries seeking to contain the pandemic to impose lockdowns and movement restrictions.

The global economy is projected to contract 4.9 per cent this year as a result of the pandemic, according to the International Monetary Fund.