Will Tiffany survive after LVMH called off the deal?

On Wednesday, LVMH called off the biggest takeover of the global luxury industry – a $16 billion deal complying the acquisition Tiffany. Tiffany retaliated by filing a lawsuit against the luxury group, and LVMH had counter-sued the jewelry brand. Amid a global pandemic and such a setback, can Tiffany pull through?


LVMH and Tiffany and Co. (Source: lvmh.com & tiffany.com)


The deal and feud between LVMH and Tiffany


On 25th November 2019, Moët Hennessy Louis Vuitton or famously known as LVMH and Tiffany announced that both the companies have gotten into definitive agreement whereby LVMH will acquire Tiffany for $135 per share, in a transaction with an equity value of approximately €14.7 billion or $16.2 billion.


“The acquisition of Tiffany will strengthen LVMH’s position in jewelry and further increase its presence in the United States” the luxury group said in their statement in November, 2019.


However, when the world was hit by pandemic, Tiffany like many other businesses has suffered its share of loses. But even before the pandemic, Tiffany reported a loss of 29% in worldwide sales to $747.1 million in their second quarter in the last financial year, which was actually an improvement from a loss of 45% in the first quarter on the same financial year.


LVMH finance chief officer Jean-Jacques Guiony looked at the recent performance of Tiffany and its management during the pandemic. He expressed LVMH was “not entirely happy” especially for the decision of not cutting the dividend of the company in spite of the loss recorded in the current crisis.


LVMH received a letter from the French government expressing concern about the deal and had requested a halt in closing the transaction till 6th Jan 2021, owing to the recent enforcement of imposition of 25% tariffs on French goods. It is said that the luxury group revealed it is not willing to extend the deadline further. The French government pointed that the letter was merely advisory, not binding. "We cannot be very pleased with a loss-making company," LVMH finance chief Guiony told reporters. It is speculated that with the outbreak of coronavirus and its impact on luxury industry might make LVMH to seek a negotiation on the price of the buyout.


“We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms. But the simple facts are that there is no basis under French law for the Foreign Affairs Minister to order a company to breach a valid and binding agreement, and LVMH’s unilateral discussions with the French government without notifying or consulting with Tiffany and its counsel were a further breach of LVMH’s obligations under the Merger Agreement,” Tiffany said. “LVMH has made clear its real goal is to attempt to renegotiate the merger price to which the parties agreed last November and, barring renegotiation, run out the clock. That attempt is entirely improper," Tiffany says in its suit, filed in Delaware.


Prospects of Tiffany & Co.


Tiffany was established in 1837, meaning they have survived the world wars, the great depression and many of such pandemics and epidemics. Analysts point out that even after having the potential to survive yet another pandemic, Tiffany fails to do so it will be because of the mismanagement of the Tiffany management team.


Tiffany and Co. earned a revenue of $1.3 billion by the end of the second quarter. A year ago, it earned $2.05 billion in the same period. In the previous financial year, the luxury brand reported a profit of $262 million as opposed to the net loss of $33 million of this year.


“The company has already returned to profitability after just one quarter of losses, and we expect our earnings in the fourth quarter of 2020 will actually exceed the same period in 2019,” said CEO Alessandro Bogliolo on Wednesday.

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