Tiffany initiated proceedings against the French luxury conglomerate on 9 September in the Court of Chancery of the State of Delaware – the same day LVMH publicly announced it was withdrawing from the acquisition – seeking to force it to comply with the original terms of the Merger Agreement signed in November 2019.
Tiffany accused LVMH of having “unclean hands”, failing to file international regulatory clearances – including in the European Union – and improperly seeking assistance from a French government minister to obstruct the closing of the deal.
In a statement published on 29 September, LVMH confirmed it had filed a countersuit centred on Tiffany’s handling of the COVID-19 crisis.
“Tiffany’s mismanagement of its business constitutes a blatant breach of its obligation to operate in the ordinary course,” LVMH’s statement said. "For instance, Tiffany paid the highest possible dividends while the company was burning cash and reporting losses. No other luxury company in the world did so during this crisis."
According to a filing with the US Securities & Exchange Commission (SEC), the company recorded sales of $US1.3 billion for the first six months to 31 July 2020, compared with $US2.05 billion for the same period in 2019 – a decline of 38 per cent.
In contrast, LVMH’s jewellery and watch division – which includes Bulgari, Chaumet, and TAG Heuer – recorded revenue of €1.3 billion ($US1.5 billion) for the six months to 30 June 2020, compared with €2.1 billion ($US2.5 billion) for the same period in 2019, also representing a decline of 38 per cent.
Notably, LVMH Watches & Jewelry recorded a loss of €17 million ($US19.9 million), compared with a profit of €357 million ($US418.9 million) in the first half of 2019 – a difference of €374 million ($US438.8 million). Tiffany & Co. recorded a loss of $US32.7 million, compared with a profit of $US261.5 million in the first half of 2019 – a difference of $US294.2 million.
Tiffany has argued that it was “not only permitted, but required, to pay its regular quarterly dividends in 2020” under the terms of the Merger Agreement, and that it "has never missed or reduced a dividend payment" since 1987, including after the September 11 terrorist attacks and during the Global Financial Crisis.
The company’s management has also contended that store closures during the crisis and the recent mass protests in the US were “entirely consistent with its legal obligations” to protect the safety of employees and customers, while another claim that it had taken on debt was “misleading”.
LVMH also contended that Tiffany had suffered “Material Adverse Effect” due to the pandemic, which would provide the French group with a valid legal option to terminate the takeover.
Material Adverse Effect is known as material adverse change under Australian law, and refers to specific matters that have a “measurable financial impact above an agreed threshold, such as a negative impact on earnings”, according to law firm MinterEllison.
A material adverse change clause usually excludes negative impacts resulting from general economic or industry conditions.
The LVMH statement said Tiffany had failed to include a “pandemic carveout [clause]” in the Merger Agreement, despite including such clauses for specific events including “cyberattacks” and “Hong Kong protests”.
In response, Tiffany claimed that the assertion of Material Adverse Effect due to COVID-19 has “no factual, contractual or legal support”.
Alessandro Bogliolo, CEO Tiffany & Co. and a former LVMH executive, said, “I am so proud of how Tiffany has gone above and beyond during the pandemic to deliver our brand mission and keep delighting our customers, even in the most uncertain of times. I want to thank the entire Tiffany team for their continued professionalism and dedication in the face of baseless accusations and misinformation.”
Joseph Slights III, Vice-Chancellor of the Court of Chancery of the State of Delaware, who is presiding over the case, has set a four-day trial to begin on 5 January 2021.
While LVMH opposed an expedited trial date, Tiffany & Co. requested the case be heard prior to the expiry of several international regulatory clearances – including in the US – on 3 February 2021.
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