Luxury brand powerhouse LVMH Moët Hennessy Louis Vuitton has called off its planned $16.2 billion purchase of Tiffany & Co., citing the threat of U.S. tariffs on French goods. However, it’s more likely that LVMH’s cold feet are a result of the battering that the overall luxury market has taken due to COVID-19.
There had been signs that the deal, originally announced in November 2019, was in trouble. In June 2020 LVMH had to refute rumors that it was trying to renegotiate the agreement. For its part, Tiffany had asked to extend the deal’s closing data from Aug. 24 to Nov. 24, 2020.
On Sept. 9, LVMH said its Board had “learned of a letter from the French European and Foreign Affairs Minister which, in reaction to the threat of taxes on French products by the U.S., directed the [LVMH] Group to defer the acquisition of Tiffany until after January 6th, 2021,” according to a company statement. Moving the acquisition beyond the November date would have effectively killed the purchase deal.
In response, Tiffany has filed a suit asking the Delaware Court of Chancery to require LVMH to abide by the purchase agreement. “We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms,” said Roger Farah, Chairman of the Board at Tiffany in a statement. “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.”
Both companies fear softening in the luxury market — particularly since COVID-19 has discouraged international travel, which traditionally brought high-spending Chinese citizens to Europe and North America. Before the pandemic, LVMH saw a Tiffany purchase as a way to grow its jewelry business, which had been one of the fastest-growing categories in luxury before the coronavirus.
Tiffany is defending its financial health: “The fundamental strength of Tiffany’s business is clear,” said Alessandro Bogliolo, CEO of Tiffany in a statement. “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.”
For Q2 2020, Tiffany’s worldwide net sales dropped 29% compared to the same period the previous year, to $747 million, with comparable sales falling 24%. However, Bogliolo touted the retailer’s digital sales, saying its global e-Commerce business grew 114% in Q2 compared to the same period the previous year. “This puts global e-Commerce sales at approximately 15% of our total global net sales for the first half of fiscal 2020 versus 6% in each of the last three full fiscal years,” he said.
For its part, LVMH reported revenues of 18.4 billion euros ($21.7 billion U.S.) for the first half of 2020, a 27% drop compared to the same period in 2019.