The LVMH-Tiffany Deal Hits Rock Bottom

*** The writing does not, and is not intended to, constitute legal advice by any means***

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Last November, LVMH, a French luxury conglomerate, announced that it would acquire Tiffany & Co. ("Tiffany"), an American luxury jeweler, through a deal that valued Tiffany at $16.2 billion. The final deal has yet to close, but the preparations were well underway as both made a filing to FTC, a regulatory agency in charge of approving the proposed acquisition. The LVMH-Tiffany deal was the latest acquisition attempt on the part of LVMH after Repossi and Rimowa, thereby further strengthening its near-solid presence in the accessories market. Also, the deal would produce "strategic values", a financial term for describing resulting synergetic effects that flow from a deal.

The merger and acquisition market has slowed amid the pandemic as businesses are increasingly wary of the uncertain economic outlook. According to Reuters, Bernard Arnault, the CEO of LVMH, hopes to renegotiate the deal, raising the possibility that it seeks to lower the initially agreed-upon acquisition price. (Note: LVMH confirmed that it had not proposed a renegotiation to Tiffany as of today.)

Both sides seem to be at odds with the idea of renegotiating. According to Reuters, the sources close to Tiffany said that the company has been duly complying with covenants pertaining to the deal (See my earlier post to learn about the role of covenants in M&A deals). They suggested that there is no legal basis for LVMH to trigger a breach of covenant. The possibility of the deal faltering plunged the price of a Tiffany share by 9%. According to Forbes, LVMH has evinced no intention yet to buy Tiffany shares traded in the market, which could help offset the downward pressure being exerted on Tiffany's per-share price. It could also well be possible that LVMH would point to Tiffany's huge debt as a means to bring the company to the negotiation table.

No one knows what each board is contemplating as both companies declined to comment citing the confidential nature of the deal. However, one thing is sure: the market is reacting negatively to the specter of a possible fallout. The trend would continue if the uncertainty surrounding the deal gets cloudier.