LVMH abandons $16 billion Tiffany takeover, battle lines drawn

By Sarah White, Silvia Aloisi and Greg Roumeliotis

PARIS/NEW YORK (Reuters) - French luxury goods giant LVMH abandoned its $16 billion takeover of Tiffany, a deal that has lost its gloss in the wake of the COVID-19 pandemic, setting the stage for a bitter battle as the U.S. jeweler sued to force it through.

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

LVMH (PA:LVMH) finance chief Jean Jacques Guiony said the letter was unsolicited and came as a total surprise, angrily rejecting suggestions that his company was using it as a pretext to pull out of the takeover of Tiffany (N:TIF).

"The deal cannot happen. We are prohibited from closing the deal," Guiony told reporters on a conference call.

Nonetheless the terms of the deal, which would have been the biggest-ever in the luxury industry and was agreed before the pandemic, have also become less commercially attractive.

The spread of COVID-19 has hammered sales in the sector hard and raised questions about whether Louis Vuitton owner LVMH was overpaying.

Guiony also said LVMH was not happy with the way Tiffany had been managed in recent months, calling its performance "lackluster".

French Foreign Minister Jean-Yves Le Drian will address in detail the issue of the planned takeover, a government spokesman said on Wednesday after a cabinet meeting.

The French government could be neither "passive" nor "naive" in the context of international negotiations with its partners, spokesman Gabriel Attal told reporters.

LVMH added that Tiffany had also asked it to postpone the closing of the deal, to Dec. 31 of this year from an already extended deadline of Nov. 24. It said its board had decided to stick to the terms of the original merger agreement, which stated that the deal must be completed by Nov. 24 -- something that is no longer possible, Guiony said.

TIFFANY FILES LAWSUIT

Tiffany, however, filed a lawsuit against LVMH in Delaware - the U.S. state where the U.S. jeweler is registered - to force the French company to complete the deal as agreed last year, accusing it of deliberately stalling completion of the takeover.

It said in its lawsuit LVMH had made clear that its real goal was "to attempt to renegotiate the merger price to which the parties agreed last November and, barring renegotiation, run out the clock."

It also refuted LVMH's suggestion that it can pull out of the deal "by claiming Tiffany has undergone a material adverse effect 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."

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Tiffany shares were down about 10.5% in New York, while LVMH shares in Paris were flat.

JEWELRY LOSES SHINE

The luxury industry is facing an unprecedented sales slump as a result of the COVID-19 pandemic, after a decade of stellar growth, with revenues expected to fall by as much as 35% this year. It will take until 2022-23 for revenues to return to 2019 levels, according to consultancy Bain.

The Tiffany deal had looked in doubt since it emerged in June that LVMH boss Arnault, France's richest person and a shrewd deal maker, was exploring ways to reopen price negotiations with the jeweler because of the pandemic, according to sources with knowledge of the matter.

Those sources said later that the group had decided against renegotiating the terms of the takeover, and LVMH has repeatedly said it was committed to the deal. Guiony said on Wednesday his group had never sought to obtain a better price.

But an initial Aug. 24 deadline was pushed back by three months as the deal had not yet been cleared by the EU Commission and other antitrust authorities.

When it struck the deal, LVMH was betting it could restore the luster of Tiffany by investing in spruced-up stores and new collections.

But the U.S. jeweler's worldwide sales fell 29% to $747.1 million in the three months to end July, missing expectations of $772 million, even though it flagged a recovery in August. LVMH's own watches and jewelry division was the worst-performing in the first half of the year.