Tiffany & Co. vs. LVMH Moët Hennessy Louis Vuitton is going to be decided sooner rather than later.
The American jeweler — which LVMH is trying to leave at the altar — succeeded in its bid for an expedited trial, although the process won’t be quite as speedy as it wanted.
Judge Joseph R. Slights 3rd, vice chancellor of Delaware’s Court of Chancery, heard from both sides in a digital hearing Monday and scheduled a four-day trial to start Jan. 5 — early enough to settle the case and allow for an appeal before U.S. regulatory approval for the $16.2 billion acquisition expires Feb. 3.
Tiffany was pushing for a trial in November, while LVMH wanted the case heard in March or April.
But Slights seemed to be holding out at least some hopes that the case could work itself out without the court’s help.
“Perhaps there can be some productive discussions that can happen sooner [rather] than later that can be concluded to avoid litigation,” he said after making his ruling.
If the case does come to trial, it promises to spark more fireworks in what has already been a vigorous back and forth, with Tiffany claiming LMVH has “unclean hands” and LVMH claiming Tiffany “fears a serene and fair rendering of justice.”
LVMH chief Bernard Arnault could be deposed in the case and asked if he, as some media outlets have reported, pressured the French government to help give the French group an out to the deal, which the firm initially said it was dropping because of a U.S.-France trade dispute.
“The court cannot make decisions based on news reports, but we look forward to exploring this issue in depth with Mr. Arnault in his deposition in this case,” said Tiffany’s attorney Rick Pepperman, of Sullivan & Cromwell.
In many respects, the case is big and complex and beset with many overlapping issues — running from the unexpected role of the French foreign minister, to documents in both French and English, difficulties conducting interviews during the pandemic and the billions of dollars at stake.
While Tiffany was asking for six or seven weeks and a decision before the date the deal was supposed to close, on Nov. 24, LVMH was looking for six or seven months. The judge in a sense split the difference with what he called an “ambitious schedule” that was nonetheless “eminently doable.”
Shortly after the hearing ended, Tiffany chairman Roger Farah chimed in, saying in a statement: “We appreciate the court’s ruling today to expedite the process. Despite LVMH’s ongoing efforts to avoid paying the agreed-upon price for Tiffany, a trial on January 5, 2021 will hopefully lead to a ruling prior to the expiration of U.S. antitrust clearance on February 3, 2021 and enable us to protect our company and our shareholders. We will demonstrate to the court that LVMH is in clear breach of its obligations under a valid and binding agreement and that their claim of a material adverse effect is completely baseless. Tiffany has acted in good faith in full compliance with the merger agreement and will continue to do so.”
For its part, LVMH noted Tiffany did not get the exact time line it wanted.
“LVMH takes note of the decision by the Delaware Court of Chancery, which stated that the trial should begin in January 2021 and not before the November 24, 2020 outside date as Tiffany had requested,” the company said. “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. In this regard, in the coming months, LVMH will demonstrate to the American justice system that the mismanagement of Tiffany during the COVID-19 crisis constitutes a material adverse effect.”
A material adverse effect is a clause in the merger agreement that lays out some conditions that would allow LVMH to walk away from the deal, which would be the largest luxury acquisition ever.
LVMH’s attorney, Edward Micheletti of Skadden, Arps, Slate, Meager & Flom, said Tiffany has “suffered an MAE as a result of the pandemic.”
“Tiffany has suffered a significant, drastic drop in revenue and net income,” Micheletti said, pointing to the firm’s first-half operating loss of $45 million, which compared with operating earnings of $345 million a year earlier.
“That’s a devastating year-over-year impact,” he said.
Micheletti also tried to sweep away Tiffany’s projections for later this year.
“Tiffany’s sweeping statement that this coming fourth quarter is going to be better than the 2019 quarter is simply not credible,” he said.
Pepperman countered that “Tiffany had a bad first quarter of 2020, it sustained an operating loss, but it returned to profitability” and that the company has not been disproportionately hit in the pandemic, which would be required to trigger the MAE clause.