LVMH insists it's not buying Tiffany shares on market; suggesting deal to go ahead, but at lower price

By

Godfrey Deeny

Published
Jun 4, 2020

With rumors mounting that Bernard Arnault may be attempting to renegotiate a better deal price for LVMH’s acquisition of Tiffany, the French luxury group announced Thursday that it did not plan to buy any shares in the American jeweler on the open market.

 
“Considering the recent market rumors, LVMH confirms, on this occasion, that it is not considering buying Tiffany shares on the market,” the luxury conglomerate said in a terse statement released Thursday morning. The statement suggests that the planned acquisition will still go ahead, however, the wording appeared deliberately ambiguous – introducing the possibility that Arnault, Europe’s richest man, is attempting to pay a lower price for the storied New York jeweler.
 
Tiffany’s stock price had been hit badly after a report came out in fashion trade publication WWD that Arnault was having second thoughts about the high purchase price for Tiffany. A possibility given the current conjuncture, with the luxury industry badly buffeted by Covid-19 and recent protests in the United States.

As noted, after protracted negotiations, LVMH, the world’s largest luxury conglomerate, agreed in November 2019 to buy Tiffany for 16.2 billion dollars, or $135 per share. The blockbuster deal – the largest acquisition ever in luxury – was heralded as a smart move to significantly boost LVMH’s presence in North America and in both the watch and jewelry businesses.
 
However, after WWD reported that Arnault had called a board meeting in Paris on Tuesday evening, suggesting that the chairman and controlling shareholder of LVMH could be having cold feet, Tiffany's stock plunged over 10% to $114.24 on the New York Stock Exchange. Meaning that LVMH could've currently acquired Tiffany stock far more cheaply on the open market than in its agreement.
 
This morning’s statement, however, indicated that LVMH will not do that, but the release did not directly state that it would respect the exact deal price. 
 
“The Board of Directors of LVMH Moët Hennessy Louis Vuitton, met on Tuesday, June 2nd, 2020 and notably focused its attention on 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,” added LVMH.
 
Informed observers in Paris speculate that LVMH deliberately leaked the information on Tuesday’s board meeting to WWD, in order to force down the Tiffany stock price on the open market, giving Arnault more leverage to renegotiate a lower purchase price. LVMH is also reportedly concerned that Tiffany may not be able to replay some of its debt obligations after the takeover is completed.  Which, theoretically, could give LVMH a legitimate legal excuse to get out of the current deal, and renegotiate better terms.
 
Given the disastrous past two months’ business in luxury, observers have suggested that weaker cash flow may prevent Tiffany from respecting its debt covenants. Tiffany was due to release quarterly results on Friday but has pushed that back until Tuesday.
 
Multiple calls to LVMH executives requesting further comment on the brief statement were not returned.