Billionaire Arnault On The Offensive After Tiffany Pays Out $140 Million Pandemic…

Billionaire Bernard Arnault’s deal to bring U.S. jewellery giant Tiffany & Co. into the LVMH family for $16 billion has been damaged by LVMH anger over the $70 million per quarter in dividends Tiffany has paid its shareholders during the pandemic, rather than by French political invention, according to a source privy to negotiations.

The deal, announced in November, was put on ice by LVMH last week following a letter from the French European and Foreign Affairs Minister that arrived “in reaction to the threat of taxes on French products by the U.S.” Bernard Arnault, Europe’s richest man and according to Flavio Cereda, equity analyst at Jefferies the “most influential person in France today” was “directed” to “defer” the acquisition of Tiffany until after January 6th of next year. 

However, a source told Forbes that rather than political intervention, the major bone of contention for LVMH has been the generous 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, an amount described by the source as “kind of bananas” and “literally burning cash.” An additional $70 million is set to be paid out in November despite a potential extended lockdown period.

The company’s plan to pay its quarterly dividend at $0.58 per share was outlined in a statement at the time of the deal, but Tiffany’s decision to continue paying dividends during the pandemic was not one the jewellery giant would have made, according to the the source, “if they were if they were not about to be sold.

“There’s no way in hell they would have agreed to it,” the source said.

LVMH did not respond to a request for further comment on shareholder dividends but stressed its dissatisfaction with how Tiffany & Co. had performed during the lockdown period having previously addressed the award of “substantial dividends when the company was loss making,” in its September 10 statement.  

Tiffany & Co.—which suffered 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—told Forbes that LVMH knew about Tiffany’s dividend policy. The November 2019 merger agreement confirmed that Tiffany would “continue to declare and pay its regular quarterly dividends in an amount not to exceed $0.58 per share and in a manner consistent with past practice.” Tiffany has paid 131 consecutive quarterly dividends since 1988 shortly after the IPO and has never missed one, including during periods of economic downturn.

Breakfast At Bernard’s

Although the deal is actually far from dead in the water, according to the source, the relationship between the parties has deteriorated at rapid speed during the lockdown, as Tiffany’s mall outlets and New York flagship stores struggled for footfall business.

When LVMH announced their decision on September 9 to “defer” the $16 billion deal, Tiffany & Co. hit back with a lengthy lawsuit, asking a Delaware court to force LVMH to complete the agreement made in November denying LVMH’s claim that Tiffany has breached its obligations under the Merger Agreement.

Tiffany has rejected LVMH’s reasoning for deferring the deal, claiming that the “supposed official French effort to retaliate against the U.S. for proposed new tariffs has never been announced or discussed publicly,” casting doubt on whether the letter was a legitimate “effort” to “pressure” the U.S. into changing its mind over the mooted customs duty on French luxury goods. 

“We regret having to take this action but LVMH has left us no choice but to commence litigation to protect our company and our shareholders,” Tiffany chairman Roger N. Farah said when the company filed the lawsuit.

A day later LVMH announced their intention to respond with a lawsuit of their own to, according to a statement, “challenge the handling of the crisis by Tiffany’s management and its Board of Directors… notably in distributing substantial dividends when the company was loss making.”  

Adding, “The long preparation of their lawsuit demonstrates the dishonesty of Tiffany in its relations with LVMH,” the company said in its September 10 statement, hinting that the relationship had deteriorated long before the September 9 announcement. 

Despite repeatedly citing government influence, LVMH later suggests a deeper, business reasoning for their cold feet, criticizing Tiffany’s management and its handling of the Covid-19 crisis claiming that the first half results and its forecasts for 2020 are “disappointing” and “significantly inferior to those of comparable brands of the LVMH Group during this period.”

However Tiffany CEO Alessandro Bogliolo argues that “the fundamental strength of Tiffany’s business is clear” and that the lockdown has not affected their profitability, according to the statement accompanying the announcement of their lawsuit on September 9. “We expect our earnings in the fourth quarter of 2020 will actually exceed the same period in 2019,” he said.