LVMH Moët Hennessy Louis Vuitton — already locked in a legal battle with its one-time takeover target Tiffany & Co. — pushed its case further on Monday with a countersuit filed in Delaware’s Court of Chancery.
And although Judge Joseph R. Slights 3rd tried to nudge the two sides together in the legal fight’s first hearing last week, suggesting “productive discussions” could help “avoid litigation,” the tone sharpened instead.
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“The business LVMH proposed to acquire in November 2019 — Tiffany & Co., a consistently highly profitable luxury retail brand — no longer exists,” the Bernard Arnault-led luxury giant said in its counterclaims. “What remains is a mismanaged business that over the first half of 2020 hemorrhaged cash for the first time in a quarter century, with no end to its problems in sight. The sharp decline in foot traffic in malls, which are at the heart of Tiffany’s retail strategy, will have a significant long-term detrimental impact on the company.”
LVMH agreed to pay $16.2 billion after approaching Tiffany for a deal last year, but everything changed with the coronavirus slowdown.
In a statement, LVMH said it had “full confidence in its position that the conditions necessary to close the acquisition of Tiffany have not been met.”
LVMH maintains that Tiffany has suffered a material adverse effect under the terms of the contract, giving the suitor the right to walk away.
“The notable absence of a pandemic carveout in the definition of a material adverse effect in the Tiffany Merger Agreement is clear,” LVMH said. “It was common before COVID-19 for transactions to contain a pandemic carveout. In the course of the negotiation, Tiffany sought and received carveouts for highly specific events, such as ‘cyberattacks,’ the ‘Yellow Vest’ movement and the ‘Hong-Kong Protests.’ Yet Tiffany did not obtain a carveout for public health crises or pandemics.”
LVMH also argued again that: “Tiffany’s mismanagement of its business constitutes a blatant breach of its obligation to operate in the ordinary course. For instance, Tiffany paid the highest possible dividends while the company was burning cash and reporting losses. No other luxury company in the world did so during this crisis.”
The company, which ranks as the world’s largest luxury firm, also noted that a letter it received from the Minister of Europe and Foreign Affairs in France makes it impossible to close the transaction with Tiffany before the outside date in the contract.
Tiffany has previously sought to counter all these arguments, noting that its business was not disproportionately impacted by the pandemic, as required under the material adverse effect clause. The company also has a long history of paying dividends even through tough times and has raised suspicions about the letter from the French government, which drags the deal into the midst of a U.S.-French trade spat over a digital services tax.
Roger Farah, who negotiated the deal with Tiffany as chairman, previously said LVMH had “unclean hands” in the matter.