Since last November, LVMH, the luxury goods conglomerate led by Bernard Arnault has been toasting to their sweet new Tiffany & Co. for $16 billion. The deal would have been the biggest and most valuable merger in fashion history, according to the New York Times. But after the pandemic decimated the luxury sector, LVMH reconsidered. The fashion conglomerate announced last week it was cancelling the deal and leaving the jewelry brand high and dry in the middle of a retail apocalypse. They’ve also gotten the French government involved, accused the jeweler of mismanaging their business, and sparked what’s become an all-out battle between two of fashion’s most powerful players. Here’s what you need to know about the merger and what went wrong.

What is LVMH?

Since 1987, the year that Louis Vuitton and champagne-cognac brand Moet Hennesy merged into LVMH, the conglomerate has been building a luxury monopoly, scooping up iconic brands across fashion, cosmetics, liquor and hotels. Under their thumb in just fashion are Céline, Marc Jacobs, Christian Dior, Kenzo, Givenchy, Loewe, Fenty and Fendi. (Just six companies own the top 40 brands in fashion). 

What did the deal look like?

When it was announced in November, it seemed like a match made in heaven. Tiffanys, one of the world’s best known jewelry brands, would be a strategic and valuable addition to LVMH’s portfolio that would boost their presence in the US and grow their share of the jewelry and watch market. In turn, the takeover would pluck Tiffany’s out of declining relevance and a sales slump, as they struggled with fluctuating tourist flows and interest from younger shoppers, setting them up for long-term growth. LVMH offered the company $135 per share — $36.45 per share more than their market value of $98.55 — according to Busness of Fashion back in November when the deal was announced. The total figure is worth more than LVMH’s takeover of Christian Dior for $13 million in 2017. 

Tiffany has been synonymous with elegance, innovative design, fine craftsmanship and creative excellence,” read a LVMH press release. Arnauld himself promised that Tiffany’s would continue to “thrive for centuries to come” under LMVH’s care. 

The deal spiked both Tiffany’s Facebook chatter from around 60,000 to 100,000 alongside their stock price. As things have gone south, both have been on the fritz.

What was the first sign of trouble?

LVMH was first rumored to be getting cold feet in late May and early June, after Covid-19 transmission rates continued to rise in the US and racial justice protests overtook American cities. In a press release on June 4, LVMH confirmed they were no longer offering the $135 per share price and wanted to renegotiate to seek a lower price. WWD reported that, due to the pandemic and protest’s disruption of retail in Tiffany’s home market, LVMH board members questioned the jeweler’s “ability to cover its debt covenants” after the deal was done. In August, the companies also squabbled over Tiffany’s right to delay the closing deadline, though they settled on a new November close date. It wasn’t the first big fashion deal to be thrown on the rocks by current events. Private equity firm Sycamore Partners dropped a deal to acquire Victoria’s Secret from L Brands in May for similar reasons. 

When did LVMH officially pull out and how did they play it?

On September 9, news broke that LVMH was officially pulling out of the deal due to a “succession of events.” Specifically, the company cited a letter from the French foreign ministry forcing them to postpone the deal until January 6 — a month after the closing deadline stipulated in the merger, giving them a legal exit (they say). LVMH said, according to the Wall Street Journal, that France was imposing the delay because of the US’ threats to impose a tax on French goods: Trump’s retaliation to a French “tech tax” on American companies like Facebook, Google and Amazon.

Is the French government actually involved?

LVMH says the “governmental order” leaves them with “no other choice.” However, some feel the letter’s timing was suspiciously convenient for LVMH, which has spent months looking for an exit strategy. “A person familiar with the government’s thinking says Arnault asked for help to let him wiggle out of the purchase,” reports Bloomberg. The outlet says the whole situation “underscores” Arnault’s “reach into the highest political echelons.” 

It wouldn’t be the first time Arnault, known in fashion as “the wolf in cashmere,” used aggressive business tactics: LVMH was reportedly considering a hostile takeover of Hermés in 2017. Adding to suspicion, TIffany’s representatives were only allowed to view a translated version French government’s letter, which was dated from over a week earlier, for a few minutes and weren’t allowed to take pictures. LVMH chief financial officer disputed these rumors to the New York Times. “Are you seriously suggesting that we procure the letter?” he asked, adding later: “It was fully unsolicited.”

What is Tiffany’s game plan?

Tiffany’s is calling bullshit. They’ve gone straight to court to try to save the deal, arguing that the foreign ministry’s letter isn’t a legal basis to end the deal, and that LVMH breached their contractual “consulting obligations” by leaving Tiffany’s out of discussions with the French government. In a press release, Tiffany’s suggest LVMH initially undermined the deal, dragging their feet and failing to file antitrust paperwork in multiple necessary regions.

Chairman Roger Farah, also alleged that no other French companies have received a similar letter delaying trade with the US, saying it’s evidence of LMVH’s “unclean hands,” according to Bloomberg.

How is LVMH fighting the lawsuit? 

The dealings have gotten dirty. Despite their glowing words about Tiffany’s months before, LVMH is counter-suing. The conglomerate claimed in a press release that Tiffany’s suit was “clearly'' prepared “a long time ago,” and demonstrates “the dishonesty of Tiffany in its relations with LVMH.” LVMH also berated Tiffany’s performance during the pandemic as ”very disappointing, and significantly inferior to those of comparable brands” and said the jeweler mismanaged their business by deciding to pay out dividends despite the health crisis. All of this, they say ”confirms that the necessary conditions for the conclusion of the acquisition of Tiffany are not fulfilled.”

Where does this leave Tiffany’s and LVMH?

Arguably, Tiffany’s needed LVMH more than LVMH needed Tiffany’s. However, according to Business of Fashion, LVMH solicited the jeweler, not the other way round. Although Tiffany executives are “in wait-and-see-mode” Tiffany Chief Executive Alessandro Bogliolo told employees that, even if the deal collapses “Tiffany will be fine as it is.” The outlet points out that, although the jeweler’s shares have fallen to around $113, the whole ordeal still leaves Tiffany shares 15% higher than before the deal was announced. “That means that investors value Tiffany 16 percent higher despite both Covid-19's blow to sales and the prospect of no LVMH deal,” the outlet writes.

“At the end of the day, Tiffany will be OK... it offers an image and a history that is kind of second to none and is highly attractive because of that,” consultant Robert Burke tells Business of Fashion. Some industry insiders still think there’s hope for the deal. For LMVH’s part, both their share price and Facebook likes have increased since the beginning of the Tiffany deal, despite all the turmoil. Tiffany and LMVH might have been stronger together, but neither is going anywhere anytime soon.

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