Tiffany & Co. and LVMH Moët Hennessy Louis Vuitton are getting married after all.
The recently warring firms jointly announced that they have “concluded an agreement modifying certain terms of their initial agreement” and a new purchase price of $131.50 in cash per share versus an original offer of $135. Tiffany and LVMH have also agreed to settle their pending litigation in the Delaware Chancery Court.
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“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,” Roger Farah, chairman of the board of directors of Tiffany, said in a statement. “The board concluded it was in the best interests of all of our stakeholders to achieve certainty of closing.”
Bernard Arnault, president and chief executive officer of LVMH and one of the industry’s most formidable dealmakers, commented: “This balanced agreement with Tiffany’s Board allows LVMH to work on the Tiffany acquisition with confidence and resume discussions with Tiffany’s management on the integration details. 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.”
Tiffany’s current ceo Alessandro Bogliolo added: “We continue to believe in the power and value of the Tiffany brand and the compelling long-term strategic and financial benefits of this combination.”
Regulatory hurdles have already been cleared, and the deal is expected to close in early 2021, subject to Tiffany shareholder approval and customary closing conditions.
The confirmation confirms a report in Thursday’s WWD that the two parties had reached a truce to avoid legal proceedings deemed harmful to both parties.
The denouement puts an end to uncertainties that were seen as harmful to Tiffany as it faces its most critical quarter in the calendar year, and allows LVMH to prevail in the largest acquisition in the luxury sector with a roughly $420 million discount.
One source suggested Tiffany was increasingly concerned it might not prevail in the Delaware court, and came under pressure from shareholders to go back to the negotiating table with LVMH. Also, with coronavirus cases spiraling in Europe, the U.S. and elsewhere, LVMH’s argument of a material adverse impact was looking more and more irrefutable.
Other legal experts, however, have argued that LVMH would have faced an uphill climb to make its case in court.
Now the main task is to bury the hatchet.
It’s been a messy fight since LVMH said it was walking away from the deal in September, pointing at first to an unusual request from the French government (which is in the midst of a trade spat with Washington) and then mismanagement, poor performance and clauses in the contract.
The legal battle between the two — filled with lots of fireworks and big legal flourishes — can now be seen as simply part and parcel of big-time deal making, where the price tags, advisory fees and reputations at stake are all outsized.
But it has also left plenty of rancor to pivot away from now.
In court papers, LVMH was critical in its assessment of Tiffany:
• “The business LVMH proposed to acquire in November 2019 — Tiffany & Co., a consistently highly profitable luxury retail brand — no longer exists. What remains is a mismanaged business that over the first half of 2020 hemorrhaged cash for the first time in a quarter century, with no end to its problems in sight. The sharp decline in foot traffic in malls, which are at the heart of Tiffany’s retail strategy, will have a significant long-term detrimental impact on the company.”
• “Tiffany’s recent woes are just the beginning of its troubles. The pandemic is still very active and far from over.”
• “Tiffany is particularly ill-suited for the challenges ahead.” (Pointing to trends in luxury retail sales and the company’s reliance on retail, especially New York).
• “Tiffany’s top five executives are in line to receive approximately $100 million collectively [in change of control payments]. On a stand-alone basis, Tiffany’s executives would never earn compensation like this and now, going forward, will instead have to face harsh realities and the shell of Tiffany’s former business.”
Joel Bines, global coleader of retail at AlixPartners, said all of the ill will can be easily washed away given the timescale that LVMH operates in.
“A lot of companies talk about long-range planning, but they mean a three-year plan or five-year plan, LVMH thinks in generations,” Bines said. “For LVMH to have a row with a company like Tiffany in the time horizon under which they are thinking about…is probably meaningless. They’re thinking about what Tiffany looks like in a generation.”
And people who work at the tony jeweler have every reason to move forward.
“If you approach it from the Tiffany side, it’s just a question of what is the best thing to do and in a situation like this, you can pout and lick your wounds or you can focus on a good outcome,” Bines said. “And if Tiffany focuses on a good outcome and understands the incredible gift that they have just been given — of time, in generations — than this will blow over and our children will know a completely different Tiffany.”
If Tiffany employees have been rattled in the back and forth, it’s an unease that can only be coming on top of the nervousness that no doubt accompanies a global pandemic and an epic recession.
“Tiffany employees are going to recognize that LVMH is a great employer and a strong company,” said Jonathan Low, a partner at the Predictiv consultancy.
The back-on again deal, though, raises again questions of scale and just what kind of massive influence LVMH has in the global marketplace means (a topic big tech has been wrestling with in increasingly public ways).
“The big are getting bigger and I think the concern for merchants and customers long-term is, if everything is controlled by LVMH or Amazon, what is choice really about anymore?” Low said. “Is this going to affect innovation in fashion? Is it going to affect innovation in jewelry? Is it going to affect what sort of products people are going to see and will it spark a backlash from people who say, ‘All this stuff looks the same and it comes from the same place and I want something new’?”
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