The French Wolf in Cashmere Tears Into Tiffany After Deal Sours

(Bloomberg) -- Bernard Arnault has proven once more that he relishes a good fight.

France’s wealthiest man attempted to pull out of a high-profile transaction this week when LVMH, the luxury conglomerate he controls, announced that it was dropping its planned purchase of U.S. jeweler Tiffany & Co. The collapse of the biggest takeover in the industry swiftly turned ugly, with Tiffany accusing LVMH of having “unclean hands” and the French side hitting back by saying the U.S. company was poorly run.

Adding to the drama, Arnault didn’t just walk away from the $16 billion prize. By getting a helping hand from the French government -- which the company says essentially demanded the deal be postponed -- Arnault underscored his reach into the highest political echelons. The move showed his willingness to spring a surprise on opponents to get his way.

But Arnault appears to have made up his mind about Tiffany largely alone, an unusual move in a takeover brimming with expensive lawyers and advisers. Instead, the 71-year-old cut out some of his closest aides in the deal, according to people familiar with the situation.

This account is based on interviews with people close to LVMH and the Tiffany accord, who spoke on condition of anonymity discussing private deliberations. LVMH and Tiffany declined to comment for this story.

Small Team

Besides Arnault, only a small group of executives, including Chief Financial Officer Jean-Jacques Guiony and Managing Director Antonio Belloni were part of the inner circle to chart a path forward, one of the people said. By contrast, most of the external advisers were left guessing what the next move might be, other people said.

The Tiffany dust-up is emblematic of Arnault’s mercurial management style, honed over decades of assembling by far the world’s largest luxury conglomerate, from Champagne to Dior haute couture to sturdy Rimowa suitcases and luxury hotels. Into that bouquet of high-end brands, Arnault wanted to inject Tiffany, giving him a rare shot at owning a recognizable name in the still-splintered jewelry market and a bigger footprint in North America.

It all started out amicably in November when the deal was announced. Arnault spoke of Tiffany as an American icon and an emblematic brand. The approach came just weeks after the billionaire flew to Texas to join President Donald Trump at the opening of a Louis Vuitton factory.

For Tiffany, joining the Arnault family promised access to a powerful branding machine, which has helped elevate smaller or family businesses such as Bulgari or Loro Piana. Buoyant luxury sales provided the lubricant for the deal, with shoppers from Beijing to London to New York pampering themselves with expensive goods.

Boom, Bust

But first the boom and then mutual appreciation fizzled. Within weeks, the global economy, and particularly the luxury-goods industry, were radically altered by the coronavirus pandemic gripping the world. China locked down, high-rolling shoppers stayed home and boutiques around the world closed up. Spending on diamonds, handbags and furs came to a virtual standstill.

By late March, with much of Europe entering strict lockdown, LVMH began having second thoughts about the price it was willing to pay for Tiffany. It considered buying stock on the market for less than the $135 a share that had been agreed, Bloomberg News reported at the time. In the end, LVMH relented, but the signs were unmistakably there that all was not well in the LVMH-Tiffany marriage.

By June, as the pandemic raged in Tiffany’s U.S. home market, developments suggested that the road was becoming rockier still. The jeweler was granted more leeway by lenders to meet credit obligations. On Aug. 25, LVMH said it reserved the right to fight Tiffany’s decision to extend the closing deadline, the clearest sign yet that the relationship had soured. Two weeks later, Arnault went public and dropped the bomb.

Huge Wealth

The letter from the French foreign ministry asking LVMH to delay the deal was dated Aug. 31, but Tiffany’s chairman only heard about the letter on Sept. 8, a person familiar with the situation said.

Tiffany was permitted to view the non-translated foreign affairs letter in Paris, but it was only given a few minutes and couldn’t take photos, the person said -- equating the treatment to only having a brief glance at the Mona Lisa at the Louvre before being ushered along.

Taking an indirect route (in Tiffany’s case via a government mandate) toward his goal is a signature Arnault move. He gained the moniker “the wolf in a cashmere coat” thanks to his high-stakes, take-no-prisoners approach over the decades that helped him win control over more than 70 brands.

“Bernard Arnault is possibly the world’s most successful investment banker –- that is how he assembled LVMH through a long string of acquisitions over time,” said Flavio Cereda, an analyst at Jefferies International Ltd.

While it made Arnault fabulously wealthy -- he ranks as the world’s sixth-richest individual, with a net worth of $86.5 billion, according to the Bloomberg Billionaires Index -- the family businesses he bought, from Loro Piana to the Guerlain perfume emporium, also walked away with a tidy profit.

Born into a small-town industrial family, Arnault honed his skills in the 1980s by extracting valuable brands from ailing shell companies, like Dior and luggage maker Louis Vuitton. That approach laid the foundation for his meteoric rise. He later added Champagne and Cognac brands, often pushing out associates and cutting jobs, burnishing his credentials as a hard-nosed business tycoon.

Arnault’s battle two decades ago for control of the house of Gucci, among the biggest names in the luxury world, is a case study in the billionaire’s willingness to engage in a drawn-out fight. The Italian leather-goods company ultimately went to arch-rival Francois Pinault -- who stepped in as a white knight when Gucci called for help -- but the contest dragged on for years before ending as one of Arnault’s few defeats.

Ugly Fight

Perhaps his most audacious move occurred about a decade ago, when Arnault quietly began building a stake in cross-town rival Hermes International. More than one luxury brand seeking to buy another, it was viewed as an assault on a French institution that prized its independence and deep heritage to the founding family.

Things got messy in the next two years, by which time LVMH had raised its stake to more than 20%. Hermes sued the luxury conglomerate, accusing it of insider trading and stock manipulation. Arnault responded with a countersuit, attacking his rival with allegations of unfair competition and slander.

The matter was only resolved years later, and LVMH eventually disposed of its stake. But it showed once more that Arnault won’t back away from a dust-up, and even where he doesn’t emerge victorious, it hasn’t sated his appetite for more.

Tiffany may also find that Arnault has lost little of his fighting spirit. For now, both sides are locked in a legal standoff. Tiffany filed a suit on Sept. 9 in a Delaware court to enforce the agreement. LVMH prepared a counter-suit, saying the performance of Tiffany’s management during the pandemic had been “very disappointing” and berating its decision to pay dividends during a time of crisis.

Strong Denial

The stakes are particularly high this time for Arnault, not just because his biggest transaction yet risks imploding. The upcoming legal fight could turn into a lengthy and expensive distraction at a time when the luxury world needs to focus on its recovery.

Reneging on an agreed deal also threatens to leave a mark on Arnault’s reputation, even though LVMH says it has no choice other than to call the whole thing off.

The French government demanded that it postpone the deal until next year because of a dispute over U.S. tariff threats, LVMH said. While the company has denied that it played a hand, a person familiar with the government’s thinking says Arnault asked for help to let him wiggle out of the purchase, Bloomberg reported. A spokesman called the allegations “malicious and totally unfounded.”

And while the relations are strained, LVMH may always be willing to return to the table should Tiffany cut the price to reflect the new reality, a person familiar with the situation said. Investors haven’t entirely given up on a deal happening, either.

Arnault can always count on his deep connections and marketing machine to help insulate him from any fallout from the Tiffany saga, at least back at home. He owns the flagship business daily Les Echos as well as Radio Classique, which covers business topics in its morning programs. A keen piano player, his largess extends to the arts –- he pledged 200 million euros ($237 million) to rebuild the Notre Dame cathedral largely destroyed in a fire last year.

But for the time being it looks as if the Tiffany prize has escaped Arnault, after the pandemic proved too awesome an opponent even for a man who has fought -- and won -- his fair share of battles in the last three decades.

©2020 Bloomberg L.P.