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Tiffany & Co. Sues Louis Vuitton, Are COVID-19, President Trump and the French Government to Blame?

Nearly a year has passed since the French luxury conglomerate Louis Vuitton announced its plan to purchase Tiffany & Co. for $16.2 billion.
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Nearly a year has passed since the French luxury conglomerate Louis Vuitton announced its plan to purchase Tiffany & Co. for $16.2 billion. The French luxury conglomerate planned to restore the American jeweler's shine and possibly boost sales for Vuitton's watches and jewelry division.

Vuitton was purchasing Tiffany for $135 a share, and the all-cash acquisition was one of the largest for Europe’s second-most valuable company. Vuitton's Chief Financial Officer Jean-Jacques Guiony called the Tiffany deal a “game-changer." It seemed like a match made in luxury heaven. 

Vuitton Chairman and CEO Bernard Arnault welcomed Tiffany to the Vuitton family in a Nov. 25, 2019 press release: "We have an immense respect and admiration for Tiffany and intend to develop this jewel with the same dedication and commitment that we have applied to each and every one of our Maisons. We will be proud to have Tiffany sit alongside our iconic brands and look forward to ensuring that Tiffany continues to thrive for centuries to come.”

Three months later, the soon-to-be united luxury company announced plans to expand their operations at Legacy West in Plano, opening stores in the $3 billion development at the north end of Windrose Avenue. Vuitton planned to complete its store in September, and Tiffany announced an October opening for its companion store. 

Their honeymoon seemed to be in full swing, but their marriage ended before it could truly begin. Vuitton has been trying to back out of the deal, blaming COVID-19 and the French government. President Donald Trump's tariff on luxury goods from France also hasn't helped. Their "divorce" trial is set for Jan. 5.

“We believe that LVMH (Vuitton) will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms,” said Roger Farah, chairman for Tiffany & Co. “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, and LVMH's unilateral discussions with the French government without notifying or consulting with Tiffany and its counsel were a further breach of LVMH’s obligations under the Merger Agreement. ‎

“Moreover, this supposed official French effort to retaliate against the U.S. for proposed new tariffs has never been announced or discussed publicly; how could it possibly then be an effort to pressure the U.S. into revoking the tariffs? Furthermore, as we are not aware of any other French company receiving such a request, it is all the more clear that LVMH has unclean hands.”

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A few months earlier, in July, President Trump announced plans to impose a 25 percent tariff on about $1.3 billion in French products in response to France’s recent digital service tax on U.S. technology companies. The tariffs are set to take effect in January 2021. 

In early September, Tiffany discovered that Vuitton had received an Aug. 31 letter from the Ministre de l’Europe et des Affaires Etrangéres that outlined what President Trump had done and the French government's response to it. Vuitton provided an English translation of the letter to Tiffany:

“‘The American government has decided to implement an additional customs duty on the import of certain French goods, in particular goods in the luxury sector’ and that LVMH ‘should defer the closing of the pending Tiffany transaction until January 6, 2021’ in order to support the French Foreign Affairs Minister’s stated intent to ‘take measures in order to dissuade the American authorities from putting these tariff sanctions into effect.’”

In a Sept. 9 press release, Tiffany claimed that Vuitton plans to honor the French government’s request and delay the transaction until Jan. 6, 2021, yet the French luxury conglomerate did not extend the Nov. 24 contractual deadline, which Tiffany said means Vuitton no longer intends to complete the merger. 

Tiffany filed a lawsuit in Delaware to stop them, seeking the court’s help to force Vuitton “to abide by its contractual obligation under the Merger Agreement and complete the transaction on agreed terms,” according to the Sept. 9 press release.

Tiffany argues that Vuitton breached its obligations in relation to obtaining antitrust clearance and refutes Vuitton’s claims that it didn’t need to obtain one since Tiffany was experiencing Material Adverse Effects due to COVID-19 or breaching its obligations under the Merger Agreement.

“The fundamental strength of Tiffany’s business is clear,” Tiffany Chief Executive Officer Alessandro Bagliolo said in the Sept. 9 press release. “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.”

The American jeweler further points out that the transaction isn’t inconsistent with Vuitton’s “patriotic duties as a French corporation” and does not excuse Vuitton from completing the merger merely because a government minister has requested it breaches the agreement. In fact, it argues that Tiffany’s financial results compare favorably with other luxury goods businesses including Vuitton.

“Tiffany believes this latest development represents nothing more than LVMH’s most recent effort to avoid its obligation to complete the transaction on the agreed terms, not dissimilar from LVMH’s baseless, opportunistic attempts to use the U.S. social justice protests and the COVID-19 pandemic to avoid paying the agreed price for Tiffany shares,” Tiffany wrote in the press release.

Shortly after Tiffany filed its lawsuit, Bloomberg followed with a report that Arnault had actually asked the French government to intercede “in an effort to pull out of a deal to buy Tiffany, according to a person familiar with the government’s thinking.” 

Bloomberg reported that two other people familiar with the situation confirmed that Arnault initiated the move. A spokesperson for Vuitton denied it and called Bloomberg’s claim “malicious and totally unfounded allegations.”

A few weeks later, Vuitton filed a countersuit, claiming that Tiffany assumed the risk of the virus outbreak and had breached its agreement by paying out the highest possible dividend. It also reiterated that the French government’s request is not something they can ignore.

On Monday, Reuters reported that Tiffany had received regulatory approval from the European Commission for its $16 billion acquisition by Vuitton. The company claimed it now had all the regulatory approvals they needed to complete the deal.

Vuitton doesn’t seem to be budging on its decision.

Local Profile contacted Legacy West to find out if or when the luxury stores planned to open their Collin County locations. No one responded by press deadline. Neither Louis Vuitton nor Tiffany & Co. are listed as tenants on Legacy West’s website, despite their projected September and October deadlines. 

A sign out front claims the stores are opening in 2021.