A “catastrophic” performance since the outbreak of coronavirus has left Tiffany with “dismal” prospects for the future, according to the company that until recently wanted to buy the luxury US jeweller for $16.6bn.
LVMH, the conglomerate led by the French tycoon Bernard Arnault, made the stinging attack on Tiffany and its management in a lawsuit launched late on Monday, in which it is seeking a judge’s blessing to walk away from the deal.
In a 97-page court filing in the US state of Delaware, LVMH argues that Tiffany’s decisions to slash capital and marketing investments, take on additional debt and pay cash dividends despite the pandemic means that it is a different business than the one it had agreed to buy.
The filing is the latest salvo in the legal battle that will determine the fate of a deal struck last year to make the New York-based jeweller part of Mr Arnault’s empire that spans brands including Louis Vuitton, Christian Dior and Bulgari. Tiffany has already sued LVMH to try to hold it to the deal.
An expedited trial has been scheduled for early January, although the two companies could also seek a negotiated solution before then.
LVMH said in its filing that Tiffany was “ill-suited for the challenges ahead” and that “its performance has been catastrophic and its prospects remain dismal” after posting a loss of $45m in the first half.
“Tiffany’s performance will continue to be poor . . . [and its] projections for the fourth quarter of 2020 are dubious given the ongoing and substantial impact of the pandemic, which continues to hamper Tiffany’s sales and shows no signs of abating,” the luxury goods group said.
LVMH also accused Tiffany’s management of trying to force the deal through because its top executives stand to profit from the transaction being completed. LVMH said that Tiffany’s chief executive, Alessandro Bogliolo, would pocket about $44m, adding that “his golden parachute is equivalent to Tiffany’s losses in the first half of 2020”.
Delaware courts have only once allowed a buyer to walk away from an agreed-upon merger agreement, and have been highly sceptical of “material adverse effect” arguments in which suitors claim external events allow them to scrap a deal. That has left LVMH also seeking to argue that Tiffany’s management breached its obligations on running the business between the deal’s signing and closing.
Tiffany has insisted that it acted in the best interest of shareholders.
As well as dramatically increasing the war of words between LVMH and Tiffany over the jeweller’s management, Monday’s filing also included a key legal argument from LVMH designed to persuade the Delaware court to invoke a material adverse effect: Tiffany did not include a pandemic in a list of catastrophic events specifically mentioned as risks that LVMH would have to bear.
Tiffany sought and received similar “carve-outs” for cyber attacks, protests in France and civil unrest in Hong Kong that disrupted retail operations, LVMH argued, showing that Tiffany and its lawyers understood the importance of such clauses in determining the circumstances in which LVMH would still have to complete the deal.
“Yet Tiffany did not obtain a carve-out for public health crises or pandemics,” it said. “Against this backdrop, the decision by two sophisticated parties, represented by sophisticated advisers, to omit a pandemic carve-out is telling. The pandemic has caused a material adverse effect that allows LVMH to terminate.”
LVMH has been manoeuvring behind the scenes for months to pressure Tiffany to accept a lower price after Mr Arnault became convinced that the $135-a-share price agreed in November made little sense given the darker outlook for luxury after the pandemic.
Tiffany has repeatedly refused to consider a price cut, saying the French group has to honour the original terms.
As the legal skirmishes continue, LVMH has faced a brewing backlash in France over whether it enlisted the French government’s help in the battle. When LVMH said earlier this month that it could not complete the Tiffany deal as planned, it blamed a letter it received from the French foreign ministry asking it to delay closing the transaction until after January 6 so as to help the country in an ongoing trade spat with the US.
LVMH has repeatedly denied that it sought the letter, but said it believed it to be a legally binding order from France.
In questioning in the French parliament last week, however, foreign minister Jean-Yves Le Drian said he wrote the letter in response to a query from LVMH.
“My role is to apply, if necessary, the government’s opinion on assessments of a political nature on the management of major international events to come,” Mr Le Drian said. “This is the reason why I answered a question from the LVMH group, totally in my role.”
Additional reporting by Alistair Gray