What happened: In dramatic fashion, luxury group LVMH is backing out of its planned acquisition of US jeweler Tiffany & Co. The mega takeover, which was announced last November, would have been the largest luxury goods deal to date at over $16billion or $135-per-share. LVMH said in a statement that a succession of events undermined the acquisition, and it was therefore not able to complete the transaction.
Agreed before COVID-19, the deal now finds both parties facing drastically different business environments. LVMH’s profits fell a whopping 84 percent the first half of 2020, while, for Tiffany & Co., the announcement will be a massive blow to their post-pandemic future. Furthermore, the cancellation comes amid a backdrop of governmental sanctions, regulations, and retaliations. LVMH has disclosed a letter from the French government calling on it to defer the signing in light of the implementation of customs duties by the US on luxury goods. Tiffany & Co. has hit back by filing legal papers in Delaware to force completion of the deal amid a drop in its share price.
The Jing Take: Earlier this year, Jing Daily among others, reported warning signs that the deal could be under threat as the process of securing antitrust approvals dragged on. It is now understood that over the past several months, LVMH CEO Bernard Arnault sought to renegotiate the terms of the deal. However, on the company’s Q2 earnings call in July, Chief Financial Officer Jean-Jacques Guiony, stated that the required antitrust filings had obviously slowed down due to the lockdown. But he added, “things are moving forward, that’s the only thing I can say.” And, when quizzed on possible US duty increases, Guiony said that while the issue had been brewing for a while, the likelihood of any being implemented was “totally unknown at this point in time.” Both points indicated the acquirement was still on track.
Alluding to pressure from the French government as a reason to renege on this deal gives LVMH a patriotic exemption from completing it. However, it may well be simply a tactical move to save finances. Additionally, the group’s reliance on China for recovery at this time cannot be overstated. The continuing escalation of tensions between China and US may have also cast a faint shadow in the decision; when it comes to securing China’s luxury consumers, backing a US company could turn out to be be a risky proposition. For now, however, Tiffany & Co. continues to be a highly desirable brand among China’s wealthy as this showdown plays out.
The Jing Take reports on a piece of the leading news and presents our editorial team’s analysis of the key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debate sprouting on Chinese social media.