LVMH rules out buying Tiffany shares on open market

LVMH said it does not plan to buy shares in Tiffany on the open market, ruling out for now one way it could seek to lower the $16.2bn price it agreed to pay for the US-based jeweller before the Covid-19 pandemic. 

In a statement on Thursday, the conglomerate led by Bernard Arnault, the world’s third-richest man, did not address whether it was seeking to renegotiate the acquisition signed in November to reflect lower growth prospects for luxury goods amid a deep economic slowdown. 

This week, Reuters reported LVMH was “exploring ways to reopen negotiations” with Tiffany, while Women’s Wear Daily said that LVMH directors “sent a clear message that the acquisition should be reconsidered” at a recent board meeting. 

Tiffany shares have sold off by about 10 per cent since the reports to close at $114.24 on Wednesday in New York. LVMH has agreed to pay $135 per share in Tiffany.

In response to the reports, LVMH acknowledged that its board met on Tuesday and discussed the “development of the pandemic and its potential impact on the results and perspectives of Tiffany & Co with respect to the agreement that links the two groups”.

“Considering the recent market rumors, LVMH confirms, on this occasion, that it is not considering buying Tiffany shares on the market.” 

People familiar with the deal said it would be very difficult for LVMH to renegotiate the price or terms given the legal contract underpinning the acquisition.

The merger agreement includes a termination clause that requires Tiffany to pay a break-up fee of $575m if it abandoned the deal. If LVMH wanted to back out of the contract, however, it would have to go to court to do so, said one person familiar with the matter, and no break-up fee for the buyer is included in the document.

 Bernard Arnault in his office in Paris The deal for Tiffany is Bernard Arnault’s largest to date © Magali Delporte/FT

People close to Tiffany said that there had been no requests from LVMH to renegotiate the deal.

They added that it was understandable that LVMH would like to pay less for the asset given the short-term impact the pandemic had on Tiffany’s businesses, but they were confident the agreement is air tight. 

A person close to LVMH said that it had informally looked at options to revise the deal but nothing has come of it to date. The person added that one of the main reasons LVMH acquired Tiffany was its growth potential in China and Asia’s largest economy is further ahead in the process of reopening, which should bode well for the US jeweller.

LVMH’s controlling shareholder Mr Arnault built his empire over decades of acquisitions, often using bare-knuckle and hostile tactics, earning him the nickname the “the wolf in cashmere”. The deal for Tiffany is his largest to date and involves a US-listed company, unlike many of LVMH’s previous deals.

“Mr Arnault likes to play hardball and is a phenomenal dealmaker, but I don’t know that it’s possible for them to negotiate the deal given that they’ve signed a contract,” said Luca Solca, a luxury goods analyst at Bernstein Research.

“The deal for Tiffany still makes a lot of strategic sense despite Covid-19, so for LVMH there would be much more to lose than gain by derailing it.”

WWD reported that there were concerns among LVMH board members “about Tiffany’s ability to cover all its debt covenants at the end of the transaction”. This would be significant because if Tiffany missed a debt payment, it would potentially open up the merger contract to renegotiation.

But people close to the deal said such a scenario was unlikely given that Tiffany announced on May 20 that it would pay its quarterly dividend of $0.58 per share as planned. The board would not have made the payout if the company was in financial stress, they added.

This article has been amended to correct the termination clauses and break-up fees