LVMH Moët Hennessy Louis Vuitton (LVMH), which announced an agreement in November 2019 to acquire Tiffany, is pushing back against rumors that the deal is under renegotiation and possibly threatened.
On June 4, LVMH’s Board of Directors released a brief statement confirming that it is “not considering buying Tiffany shares on the market.” The company made the announcement in response to “recent market rumors” that it was seeking to renegotiate the deal, which was valued at approximately $16.2 billion in November based on a purchase price of $135 per share in cash.
A Wall Street Journal article published June 4 reported that analysts predicted LVMH was reevaluating the deal in light of the coronavirus pandemic, which led to the closure of all of Tiffany’s retail locations in mid-March, compounded by the recent unrest sparked by the killing of George Floyd by Minneapolis police. The looting and physical destruction of stores that has accompanied some demonstrations has rekindled consumers’ reluctance to shop in downtowns and malls.
Many retailers saw their stock value plummet as lockdowns started in March, forcing some well-known brands into bankruptcy, but share prices are coming back as states begin reopening. Tiffany’s share price has seen less movement than most. While its share price fell more than 15% when store closures were first announced, in less than a week the share price bounced back to $129 and held close to that level until June 2. The price tumbled roughly $10 per share on rumors that LVMH was seeking to renegotiate and bounced back since the company’s June 4 announcement.
While the merger agreement is not changing for the time being, Reuters reported that “LVMH will be closely monitoring Tiffany’s finances in the coming weeks” to make sure the high-end jeweler stays in compliance with its bond covenants. “Were Tiffany to be in breach of the covenants, LVMH could use this as grounds under the merger agreement to call for a renegotiation of the terms,” unidentified sources told Reuters. The sources also said Tiffany “has been in discussions with its creditors to make sure it remains in compliance with its debt covenants.”
On June 9, Tiffany is scheduled to release its Q1 earnings. Analysts are anticipating the company will report a revenue decline of approximately 50%, according to The Wall Street Journal, which noted that Tiffany’s February-through-April Q1 encompasses the COVID-19 lockdown periods in China and the West.