LVMH has agreed to go ahead with its acquisition of Tiffany at a slightly lower price, approving a $15.8bn deal and ending a bitter conflict triggered by the Covid-19 pandemic that threatened to derail the luxury sector’s biggest-ever acquisition.

The French luxury group behind brands such as Louis Vuitton and Christian Dior said on Thursday it would pay $131.50 a share for the US jeweller, down from the original price of $135, valuing the equity at about $15.8bn. In addition, Tiffany would pay its shareholders a dividend of $0.58 a share.

In a joint statement, the two companies said they would settle their duelling lawsuits filed in the US state of Delaware in September, which were sparked when LVMH threatened to walk away from the deal

The two groups’ boards of directors approved the revised terms at respective meetings on Wednesday night. The new terms of the agreement will have to be approved by Tiffany shareholders, so the closing is now expected early next year. All antitrust clearances have been obtained.

The peace deal means LVMH’s billionaire chairman and chief executive Bernard Arnault will save about $425m off the original price tag, or less than 3 per cent. 

It also shows that Mr Arnault, who has a reputation as a fierce negotiator who built his empire through acquisitions, did not really want to abandon the takeover even as he jockeyed for a lower price for months. He allowed LVMH’s lawyers to skewer Tiffany in legal filings for its “catastrophic” performance and “dismal” prospects for the future following the outbreak earlier this year of the coronavirus pandemic

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France’s richest man has now put such acrimony behind him. “We are as convinced as ever of the formidable potential of the Tiffany brand and believe that LVMH is the right home for Tiffany and its employees during this exciting next chapter,” Mr Arnault said in a statement. 

Tiffany’s chairman Roger Farah said the board of directors concluded that the compromise was in the “best interests of all of our stakeholders to achieve certainty of closing”.

“We are very pleased to have reached an agreement with LVMH at an attractive price and to now be able to proceed with the merger,” he added.

The deal, originally signed a year ago, hit the rocks in September when LVMH said it had to pull out of the transaction after the French government asked it to delay the acquisition because of trade tensions between Paris and Washington. Before that, Mr Arnault had tried multiple times to lower the price of the deal without any success, claiming that the pandemic had fundamentally changed the value of Tiffany.

Tiffany then defended itself by filing a lawsuit to force LVMH to complete the deal at the original terms.

Some analysts questioned why LVMH had touched off such a war with Tiffany for what ended up being a relatively modest price cut. “If confirmed, the magnitude of the price tweak would be odd,” wrote Jefferies analyst Flavio Cereda in a note before the announcement. “It is unclear to us why LVMH and its legal team would pursue the course of action they have done since early September to secure a minimal discount to the terms originally agreed.”

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But Mr Cereda said the strategic rationale for the tie-up remained valid because LVMH wanted to bulk up in watches and jewellery where it was smaller than rivals such as Richemont, which owns Cartier.

Such “hard luxury” goods accounted for only 8 per cent of LVMH sales and 6.5 per cent of operating profits last year, while most of its profits came from “soft luxury” goods, such as Louis Vuitton handbags and apparel.

Covid-19 shook up the luxury sector’s outlook as stores were forced into lockdowns and travel curbs prevented usually free-spending Chinese tourists from travelling internationally. Analysts have predicted that the sector’s sales could fall by up to 30 per cent this year and take up to three years to recover. 

Stronger than expected third-quarter sales from LVMH and Hermes recently raised hopes of a rebound after consumers in Asia and the US started buying luxury goods again this summer. LVMH shares have reversed an almost 35 per cent decline earlier this year and are now trading at about €402, only about 8 per cent off their all-time highs. 

The sector’s recovery may now be in danger as a second round of lockdowns are implemented across Europe and France and Germany close non-essential businesses in the coming days.

Via Financial Times