Blow For Arnault As Tiffany Wins Expedited Trial Over $16 Billion LVMH Takeover

Update, Sept. 21, 2020: On Monday a Delaware court granted Tiffany & Co.’s motion to fast-track their lawsuit against LVMH. The court set a trial date of January 5, 2021. “We appreciate the Court’s ruling today to expedite the process,” Tiffany chairman Roger Farah said in a statement. “Despite LVMH’s ongoing efforts to avoid paying the agreed-upon price for Tiffany, a trial on January 5, 2021 will hopefully lead to a ruling prior to the expiration of U.S. antitrust clearance on February 3, 2021 and enable us to protect our company and our shareholders.” LVMH, meanwhile, said in a statement that it “takes note of the decision by the Delaware Court of Chancery, which stated that the trial should begin in January 2021 and not before the November 24, 2020 Outside Date as Tiffany had requested” and said that the luxury giant is “fully confident that it will be able to defeat Tiffany’s accusations and convince the Court that the conditions necessary for the acquisition of Tiffany are no longer met.”

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The $16 billion battle between Bernard Arnault’s luxury group LVMH and U.S. jewelry giant Tiffany & Co. faces a key court decision today. Lawyers for Tiffany are attempting to fast-track their case and force LVMH to complete the deal to acquire Tiffany, which it agreed to in November.

Tiffany & Co. is fighting to move up the Delaware court’s hearing on the deal to before the November 24 termination date specified by the agreement. If the case isn’t heard before the termination date, Tiffany executives fear any decision would be a moot point since the deal would have already expired. Last week LVMH asked the court to dismiss Tiffany’s request, arguing that it was filed “feverishly and hastily” and that “[t]here are no objective reasons why the upcoming trial should not take place within a normal timeframe.” It asked the court to hold the trial in six or seven months.

On Friday, LVMH—which has been facing charges from Tiffany that it’s attempting to “run out the clock” on the deal—confirmed that it has submitted the transaction for approval by the European Commission, one of several steps it must take before the merger could go through, and a well-timed signal to the U.S. court that the luxury giant is acting in good faith. A source close to LVMH told Forbes that Tiffany can no longer claim that LVMH is dragging its feet. A Tiffany spokesperson, meanwhile, said it is “delighted” the filing has “finally been made,” but, “[t]he speed with which LVMH acted after Tiffany filed its complaint in Delaware only underscores LVMH’s delays and lack of compliance with the Merger Agreement over the prior months.”

What Went Wrong?

The deal was quietly on the rocks until two weeks ago, when LVMH made a major announcement: the company said that it would be putting the deal on hold. Citing a letter from French European and Foreign Affairs Minister that arrived “in reaction to the threat of taxes on French products by the U.S.,” LVMH claimed it was “directed” to “defer” the acquisition of Tiffany until after January 6th of next year. Tiffany immediately filed a lawsuit on September 9.

As the relationship between Arnault’s LVMH’s, who is Europe’s richest person, and Tiffany – the brand he once described as an “American icon” – continues to break down, further details have emerged. A source from inside the U.S. jewelry giant told Forbes that Tiffany is prepared to litigate and sees no case for a price reduction.

A major complaint of LVMH’s is that Tiffany has continued to pay out $70 million in dividends per quarter, even during the pandemic. The Tiffany source says that the $0.58 per share dividend was “very clear” in the deal announcement and proxy statement, and any change to the dividend would have risked shareholder litigation and further delayed the deal (a claim LVMH disputes).

With Tiffany in a strong financial position, holding some $1.1 billion in cash reserves according to a recent filing with the Securities and Exchange Commission, the source alleges that LVMH used the pandemic as an “excuse” to attempt to stop the dividend payments, which would result in more cash on the balance sheet for LVMH to inherit when they acquire the company. 

LVMH did not respond to a request for further comment on the allegations.

However, the company’s concern over the state of the U.S. market, and of Tiffany & Co.’s response to the pandemic, is well documented. After Tiffany announced a net loss of $32.7 million during the first half of 2020, compared to a $261 million profit over the same period in 2019, LVMH described the results and its forecasts for 2020 as “disappointing” and “significantly inferior to those of comparable brands of the LVMH Group during this period.”

A source from within the LVMH camp told Forbes last week that the dividend payments Tiffany has made to shareholders since the deal was announced, especially those paid out in May and August during the pandemic, which total $140 million, was viewed by LVMH as “literally burning cash” and a cause for genuine concern. Tiffany CEO Alessandro Bogliolo said in last week’s statement, “LVMH’s allegations regarding mismanagement are both untrue and legally irrelevant.”

The first signs that the deal was in trouble came in June, following the publication of a story on fashion industry news site WWD. The article cites concern from the LVMH board in late May over the state of the U.S. market and Tiffany’s ability to cover its debt covenants. Tiffany has since rejected the allegation citing its strong liquidity position and cash reserves. The article does not specifically mention dividends or French political influence, the two key points made in LVMH’s statements since September. However, at this point Tiffany’s dealmakers began preparing to protect the agreed price through litigation, according to a source from Tiffany’s currently involved in the lawsuit.

Tiffany’s argument to fast-track their complaint will be heard at 3pm eastern time today.