Less than a year after Tiffany & Co. shareholders “voted overwhelmingly to approve” a $16.2 billion mega-merger with LVMH Moet Hennessy Louis Vuitton, they voted again on Wednesday. This time around, ninety-nine percent of Tiffany & Co.’s shareholders sought to approve the jewelry stalwart’s renegotiated merger with LVMH during a virtual shareholder meeting. The “new” $15.8 billion deal, which the two luxury goods groups reached towards the end of October, shaves roughly $425 million dollars off of the originally-agreed-upon price tag, with LVMH ponying up $131.5 per Tiffany share, down from the $135/share price they first put in writing in November 2019.
By garnering majority shareholder approval for the merger – which will transform the 183-year old Tiffany & Co. from a publicly traded entity to a subsidiary of the Euronext-traded LVMH, alongside the likes of Louis Vuitton, Christian Dior, Givenchy, and Celine, among 70-plus other luxury names – the parties are bringing an end to the ugly dispute that erupted in litigation this fall after LVMH sought to pull out of the deal as a result of the havoc wreaked upon the market by the COVID-19 pandemic, and upon Tiffany’s business, in particular, according to LVMH.
On the heels of the November 2019 announcement that Tiffany and LVMH had formalized the largest luxury deal to date, COVID-19 hit, and LVMH chairman Bernard Arnault set out on a months-long quest “to renegotiate [the terms of] the merger after the pandemic threw the luxury industry into turmoil. He asked the French government for help getting out of it and later enlisted a Rothschild & Co. banker to conduct back-channel talks with Tiffany, according to people familiar with the matter,” the Wall Street Journal reported this week. “Upset over Tiffany’s insistence on paying full shareholder dividends before the deal [was initially slated to] close [in mid-2020],” the 71-year old Frenchman “demanded the jeweler lower the deal price by 11 percent.”
When Tiffany refused to play ball with the notoriously ruthless Arnault, things swiftly went south. On September 9, LVMH told Tiffany that the deal was off. In addition to citing a September 8 letter – in which the French government requested that the deal be delayed – as the basis for its attempt to withdraw (one that Tiffany characterized as “a non-binding advisory letter” and legally insignificant in terms of its impact on the validity of parties’ deal), LVMH asserted that Tiffany had failed to “follow an ordinary course of business. LVMH took issue with Tiffany distributing substantial dividends when the company was loss making,” while also claiming that “the operation and organization of [Tiffany] are not substantially intact,” thereby, invoking the Material Adverse Effect (“MAE”) clause in the parties’ merger agreement, which they signed-off on in November 2019, ahead of the onset of COVID.
By the end of the month, the matter had culminated in two rival lawsuits, the first of which was filed on September 9 by Tiffany. The jewelry purveyor sought a court order requiring LVMH to “abide by its contractual obligation under the merger agreement to complete the transaction on the agreed terms.”
After publicly slamming the allegations at the heart of Tiffany’s suit “totally unfounded” and “demonstrat[tive] of the dishonesty of Tiffany in its relations with LVMH,” LVMH filed a complaint of its own with the Chancery Court on September 29. The group argued, among other things, that Tiffany “hemorrhaged cash for the first time in a quarter century, with no end to its problems in sight,” and asserted that “Tiffany’s performance will continue to be poor,” at least in part because its “retail strategy” is “particularly ill-suited for the challenges ahead” and will “have a significant long-term detrimental impact on the company.” With that in mind, and given “the decision by two sophisticated parties, represented by sophisticated advisers, to omit a pandemic carve,” LVMH asserted that the pandemic had, in fact, “caused a material adverse effect that allows LVMH to terminate.”
From the outset, Tiffany characterized LVMH’s MAE allegations as lacking in “factual, contractual or legal support,” and argued that “nothing alleged by LVMH has come close to meeting the MAE definition in the merger agreement, which excludes all ‘changes or conditions generally affecting the industries in which [Tiffany] operate[s]’ and ‘general economic or political conditions.’” The state of Tiffany’s business – which saw it beat Wall Street expectations with a “smaller-than-expected decline” in revenue of 1 percent to $1.01 billion for Q3, as opposed to expectations of a lesser $980.71 million in sales – seems to back up its assertions that LVMH’s sweeping MAE claims were largely without merit.
In other words, Tiffany’s “strong trading improvements” and “beat on the profit line” in Q3 (as Bernstein analyst Luca Solca put it in November) go against LVMH’s previous deal-breaking argument that Tiffany was in the midst of suffering from a “durationally significant downturn,” or MAE, Brian JM Quinn, a professor at Boston College Law School, who focuses on corporate law, M&A, and transaction structuring, previously told TFL.
In court, amidst allegations that LVMH was purposefully delaying on some of the necessary regulatory approvals upon which the deal was dependent, Tiffany sought to fast track the case in order to meet the November 24 closing date on the deal. At the same time, LVMH pushed back, stating, “There is no objective reason why the upcoming trial should not take place within a normal time frame,” and that “it is up to the Delaware court to determine who is in his right, and not the chairman of Tiffany through the press.”
While the court agreed to expedite the matter to an extent – a relatively common move when a deal deadline is in play – and scheduled a four-day trial to begin on January 5, 2021, LVMH and Tiffany will not appear in court in January, as on the heels of reports of behind-the-scenes re-negotiations, they revealed on October 29 that they had managed to salvage their deal.
The agreed-upon $131.5 per Tiffany share price puts a 2.6 percent dent in the cost of the original deal, enabling LVMH to save upwards of $400 million, or less than 1 percent of its 2019 revenue, and so, it is not exactly the glowing victory of renegotiation that LVMH may have hoped for. (Or as the WSJ’s Matthew Dalton and Suzanne Kapner put it, Wednesday’s shareholder vote “cap[s] a deal in which … Arnault, didn’t get his way.”). Ultimately, LVMH did not really get a “deal” or a “discount,” according to Quinn, who points to the not-so-insignificant strings attached to the 2-plus percent price drop, including the removal of a number of conditions that would enable LVMH to walk away from the deal again, and a provision that mandates that if LVMH does, in fact, attempt to walk away again, damages for Tiffany will be calculated based on the original $135-per share price.
“It is basically the equivalent of going into a Tiffany store and asking for a 2 percent discount on a diamond,” Quinn told TFL in November. “You’re embarrassing yourself just by asking for it.”
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