London/Paris — The luxury industry’s biggest takeover has collapsed into acrimony as LVMH moved to call off a $16bn purchase of Tiffany & Co, which countered with a lawsuit to try to keep the deal on track.

The Louis Vuitton owner cited delays related to a US-France trade dispute, while the jeweller said the French giant was trying to leverage the protests against police brutality and the Covid-19 pandemic to seek a lower price.

Tiffany shares plunged about 10% in pre-market US trading, while LVMH gave up gains to trade 1% lower in Paris.

The deal, struck in November 2019, ran into trouble after coronavirus-related lockdowns closed shops around the world and curbed international travel, hitting demand for luxury goods. Adding Tiffany was seen as a way for LVMH chair Bernard Arnault to bolster the French company’s US presence by adding an iconic label known for its robin’s egg blue packaging.

Losing Tiffany would be a rare setback for Arnault, who built his empire through a string of acquisitions, amassing a conglomerate encompassing everything from Dior fashions to Dom Pérignon Champagne. Tiffany offered a rare opportunity to gain a major brand in the jewellery market, which remains largely splintered among artisanal manufacturers, while other global names such as Richemont’s Cartier are already owned by competitors.

Tiffany’s global net sales fell 29% in the quarter ended July 31, though that was an improvement from a 45% drop reported the previous period. The turmoil in the luxury market since the coronavirus spread had prompted speculation that LVMH would seek a lower price.

“It’s a great way out for LVMH,” said Keith Temperton, a trader at Lombard Forte Securities, in an e-mail. “They had paid a top-of-the-market price ahead of the pandemic for Tiffany. Their efforts to wriggle out of it are not surprising.”

Deadline extended

Last month, the jeweller extended the deal deadline by three months, to November 24, prompting LVMH to say it reserves the right to challenge the new closing date.

LVMH said the French government, in a letter, had asked the company to delay the deal beyond January 6 2021, citing a US move to impose tariffs on French goods.

In July, the US announced 25% tariffs on French goods, including makeup, soap and handbags, in a long-running battle over taxing global technology firms. The implementation of the levies was delayed for 180 days while France suspended collection of its digital services tax, which the US says unfairly targets American firms.

A month before LVMH and Tiffany struck their deal last year, Arnault traveled to Texas to join US President Donald Trump at a ribbon-cutting ceremony for a new Louis Vuitton factory, part of a plan by the French tycoon to hedge against trade tensions.

After reaching an agreement to buy Tiffany, Arnault described it as an “iconic, emblematic brand of America, with a great history”, and said the deal would boost its prospects in Europe and China.

Delaware suit

The French government’s request to LVMH for a delay in the closing date has no basis in French law, Tiffany said.

The lawsuit, filed in Delaware, “refutes LVMH’s suggestions that it can avoid completing the acquisition by claiming Tiffany has undergone a material adverse effect or breached its obligations under the merger agreement, or that the transaction is in some way inconsistent with its patriotic duties as a French corporation”, Tiffany said.

The reason advanced by LVMH, notably the letter from the government, is “convenient” but it’s not an “excuse you can invent”, Sanford C Bernstein analyst Luca Solca said by phone.

The price LVMH would have to pay to walk away wouldn’t be a “very material amount”, Solca said. That’s because, typically, US courts would look only at the negative impact for the company, not shareholders. The courts would probably assess the costs of the legal and financial advisers and any third party that advised Tiffany.


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