LVMH, Tiffany Urged to Seek Settlement as Judge Fast-Tracks Case

(Bloomberg) -- Tiffany & Co. persuaded a court to fast-track a lawsuit claiming that LVMH is relying on faulty legal pretexts to try to cancel a $16 billion buyout, with the judge urging both sides to seek a settlement.

Delaware Chancery Court Judge Joseph Slights III on Monday rejected a request by the maker of Louis Vuitton bags and Moet & Chandon Champagne that he put off the case until well into next year. But the judge also denied the jewelry chain’s bid to have the matter decided before the deal’s Nov. 24 closing date, setting a trial for Jan. 5.

Slights suggested both companies should weigh whether to hold “productive conversations to avoid litigation.”

The ruling puts pressure on Paris-based LVMH to justify cancellation of the luxury industry’s largest-ever deal, struck last November before Covid-19 devastated the retail landscape. LVMH has pointed to a letter from the French government seeking to delay the deal’s closing because of a trade dispute with the U.S. It has also said its decision was driven by Tiffany’s missteps during the pandemic, such as continuing to pay dividends.

“LVMH is fully confident that it will be able to defeat Tiffany’s accusations and convince the court that the conditions necessary for the acquisition of Tiffany are no longer met,” the company said in a statement.

Differing Deadlines

Though Tiffany had hoped Slights would rule before the transaction’s Nov. 24 closing deadline, the judge said he was scheduling the trial with an eye on the Feb. 3 expiration of U.S. antitrust clearance for the deal.

Tiffany Chairman Roger Farah said in a statement that the company welcomed the ruling and said the trial “will hopefully lead to a ruling prior to the expiration of U.S. antitrust clearance and enable us to protect our company and our shareholders.”

The January trial date will force LVMH to decide whether it agrees to extend the transaction’s deadline or potentially face billions in damages if Slights finds it wrongfully pulled out of the deal, said Larry Hamermesh, a University of Pennsylvania law professor who specialized in Delaware corporate-law cases.

“If LVMH refuses to extend the date, they could find themselves in hot water with the judge, who’ll be deciding whether or not they are liable for pretty massive damages in this case,” Hamermesh said in an interview. A spokesman for LVMH declined to comment on whether the conglomerate will agree to extend the deadline.

Tiffany says in court filings that LVMH is trying to negotiate a lower deal price in the wake of the downturn in the luxury market. It has also pointed to the French company’s delay in seeking European Commission antitrust review as an example of bad faith. LVMH, which filed for the review on Sept. 18, has denied the allegation, saying the hold-up was due to the Covid-19 pandemic. The commission said it will submit its findings by Oct. 26.

“I see productive conversations coming,” Luca Solca, analyst at Bernstein said by e-mail. Bernstein says 53% of investors participating in a poll think the deal will go ahead.

Uncertain Investors

For Tiffany, a collapse of the transaction would bring uncertainty, with investors missing out on the promised $135 a share. On Monday, the shares closed at $115.21 in New York. LVMH traded 0.5% higher early Tuesday in Paris.

While recent post-lockdown trends show a relative improvement for the brand known for its robin’s-egg-blue packaging, it isn’t out of the woods with international tourism still halted and New York City -- where Tiffany owns its flagship store on Fifth Avenue -- virtually empty.

For LVMH, which is controlled by French billionaire Bernard Arnault, getting out of the deal would prevent it from overpaying for an asset that’s recently lost its luster and would need heavy investments in coming years to compete with brands like Richemont’s Cartier.

The stakes are particularly high this time for Arnault. The fight risks turning into a distraction as the luxury world needs to focus on recovery. At the same time, reneging on such a large acquisition could also blemish his reputation as luxury’s top dealmaker.

The case is Tiffany & Co. v. LVMH Moet-Hennessy-Louis Vuitton SE, 2020-0768, Delaware Chancery Court (Dover).

©2020 Bloomberg L.P.