Luxury goods giant LVMH cancels $ 14.5B deal for Tiffany

The deal’s value was erased by widespread industry woes due to the coronovirus epidemic following Wednesday’s announcement.

Luxury goods giant LVMH has closed a deal to acquire jewelery retailer Tiffany & Co.

The deal’s value was erased by widespread industry woes due to the coronovirus epidemic following Wednesday’s announcement.

The Paris-based group said that both the French government and Tiffany had requested that the deal be deferred for a few months. The French government said, the French wanted to assess the impact of potential US tariffs on goods.

As a result, LVMH said, the $ 14.5 billion deal – which would have been the largest in the luxury market ever and was scheduled to close on November 24 – would be canceled.

Tiffany responded that it is suing to implement the merger agreement, which was signed in November 2019. The New York Company stated that LVMH’s argument has no basis in French law. Tiffany also stated that LVMH has also not attempted to seek the necessary conflicting approvals from the three courts.

“We believe that LVMH would like to use any available means in an effort to avoid transactions on agreed terms,” ​​Tiffany Chairman Roger Farah said in a statement.

Shares in Tiffany closed up $ 7.85, or 6.4%, on Wednesday at $ 113.96. At LVMH, which owns 75 brands including Christian Dior, Fendi, Givenchy and Tag Heuer, were stable.

The price of the deal came under strain during the epidemic, causing retail sales to spread worldwide. Tiffany’s stock price has been trading around $ 125 per share for the week – well below the $ 135 per share price that LVMH agreed to pay last fall before the epidemic.

Subsequently, industry experts said the deal makes sense. Tiffany, known for her delicate jewelry, distinctive blue boxes and an Audrey Hepburn film, was trying to transform her brand to appeal to younger and more digital shoppers, and those with deep pockets to help expand Could use an owner.

LVMH, led by billionaire Bernard Arnault, thought the deal would strengthen its position in high-end jewelry and the US market. LVMH was also placing bets on China’s economy, where Tiffany was increasing its presence.

The epidemic threw all those beliefs and plans into doubt, and the threat of new tariffs between the US and Europe was cited as a more complex issue.

Prior to COVID, the global market for personal luxury goods was solid, reaching a record high of $ 307.1 billion (260 billion euros) in 2018 – a 6% increase from a year earlier, according to consulting firm Bain & Co. Bain estimates slipped from sector 2.1 to $ 331.9 (281 billion euros), down by% last year.

But due to COVID’s financial decline and the closure of tourism worldwide, those sales could decline from 20% to 35% in 2020, Bain estimates. Bain expects private luxury sales to not hit pre-COVID levels until 2022 and 2023.

Tiffany’s global sales declined 29% in the second quarter of the fiscal year ended July 31, a 45% drop in the first quarter of the fiscal year.

Last year, France sought to impose a tax on global tech giants including Google, Amazon and Facebook. The French technical tax aims to “establish tax justice”. France wants digital companies to pay their fair share of taxes in countries where they make money instead of using tax havens, and is insisting on an international agreement on the issue.

In response to the Tech Tax, the US threatened to impose 100% tariffs on $ 2.4 billion worth of French products.

Both sides are in a tense situation as France said it would delay the collection of the digital tax until December, parking the issue until after the next US presidential election where Trump hopes to secure another four-year term Huh.

At a news conference on Wednesday, French government spokesman Gabriel Attal confirmed that a letter was sent to LVMH by French Foreign Minister Jean-Yves Le Drian and international talks about US tariffs as a “very important issue” Had mentioned.

“The (French) government is neither naive nor inactive. We have objectives that we want to reach, ”he said. He did not elaborate further and said that Le Drian is expected to express his views on the issue in the coming hours.

LVMH CFO Jean Jacques Guoni insisted in a phone interview with reporters that the letter received from the French government on 1 September was legal and valid and left the group no choice.

“I don’t think their aim is to please LVMH or not. They don’t give a damn…”, he said. “The letter is legally valid, legal. When you get such a legally binding and legally valid letter Is, you implement it… .we’ll implement it. ”

When asked about lowering the price to keep the deal alive, he said that it was also not believed that there was no article in the contract that would allow it.

“The deal cannot be made … We are prohibited from closing this transaction … We have no choice.”

For the threatened lawsuit, the CFO said he “does not see a way between the two” arguments that two parties could put in place — we do not deal on November 24 and they are saying you have to, anyway, he said .

“We’ll see what happens.”