LVMH Fights Back: Unpacking LVMH's Answer and Counterclaim Against Tiffany

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

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In an earlier post, I summarized several key claims Tiffany & Co. ("Tiffany") asserted against LVMH Moët Hennessy Louis Vuitton ("LVMH") for their failed merger deal. Now's the time for LVMH to counterattack. In its 145-page answer and counterclaim, LVMH characterized Tiffany's allegations as "baseless" and "misleading", shifting the blame onto the American luxury retailer.

1) Tiffany has suffered a Materially Adverse Effect.

LVMH claims that the carve-out provision in dispute does not apply to a pandemic. LVMH points out that Tiffany specifically requested during negotiation that events such as Hong Kong protests or "Yellow Vest" movement to be included as carve-outs. Had Tiffany wished to insert the current pandemic among the list of "highly negotiated" exemptions to the MAE clause, it would have and could have done so. To substantiate its claim, LVMH enumerates several agreements (predating their negotiation) that contain the pandemic carve-out and reveals that these agreements were negotiated by the same lawyers that Tiffany retained for their merger agreement. In light of these circumstances, LVMH concludes that Tiffany assumed the risk by expressly taking the pandemic carve-out off the table. Therefore, Tiffany's "catastrophic" and "dismal" performance during the pandemic is sufficient to trigger the MAE clause because it is no longer the business LVMH had in mind when it had proposed to acquire it in 2019.

2) Tiffany materially breached the merger agreement.

Contrary to Tiffany's portrayal, LVMH alleges that Tiffany did not conduct its business "in the ordinary course" and thus materially breached its operating covenants. For example, Tiffany lavishly doled out dividends amid the company's dwindling cash flow and profits. LMVH further alleges that Tiffany covertly borrowed money to avoid breaching its debt covenants pre-closing. If LVMH were to acquire Tiffany as it is, it would take substantial efforts to repair "its damaged financial conditions and strategic positioning", especially when Tiffany's unsound financials are highly likely to continue for the foreseeable future.

3) The self-serving allegations in Tiffany's complaint cannot save the transaction.

LVMH adamantly denies Tiffany's claim in connection with delayed regulatory clearance. LVMH demonstrates that it already secured most of the required antitrust clearances while admitting that, in some countries, the process had been slow. Yet, it maintains that LVMH used commercially reasonable efforts despite the continuing disruptions brought about by the pandemic. It even suggests that, for a conglomerate like LVMH, gathering mountainous yet scattered pieces of information and submitting them to different jurisdictions necessarily involve substantial time. LVMH suggests that Tiffany had to concoct this unfounded claim because it stands to gain more by salvaging the transaction.

In sum, LVMH accuses Tiffany of manufacturing spurious claims. The answer and counterclaim portrays LVMH as a home to 75 distinguished maisons, subtly refuting Tiffany's insinuation in the complaint that LVMH (to wit, Bernard Arnault) is a ruthless acquirer of luxury fashion companies. So the consistent theme percolating in LVMH's answer and counterclaim?: It no longer sees Tiffany as a maison worthy of acquisition.