Wall Street is betting that both sides are about to blink in Tiffany & Co. vs. LVMH Moët Hennessy Louis Vuitton.
Shares of Tiffany jumped 4.9 percent to $128.88 on Tuesday on multiple reports that LVMH’s buyout of Tiffany could be salvaged for a relatively small discount. A source familiar with the situation said the talks were ongoing and could still “fall apart.”
The final price is expected to range from between $130 a share and the $135 agreed on when the two negotiated a deal last year.
Spokesmen for both LVMH and Tiffany declined to comment.
For mere mortals, the money at stake is huge — each dollar off the per-share price represents a $120 million cut to the overall price tag (which stood at $16.2 billion when the deal was agreed on in November and would be higher now given an increase in shares outstanding).
For LVMH, with a market capitalization of nearly 211 billion euros, or for luxury titan Bernard Arnault, with a personal fortune set at $120 billion, according to Forbes, the potential price reduction being discussed is less meaningful.
But it’s something and it gets Arnault out of a legal battle he might not relish and keeps the deal from being decided by a Delaware court judge.
While LVMH sought out an acquisition with Tiffany — one of the few true American luxury brands — the French giant started cooling on the transaction after the pandemic hit and in September said it was walking away. LVMH pointed to an unusual letter from the French government, which tied the deal to a separate trade dispute between Paris and Washington.
LVMH came under fire for never sharing a copy of the letter in the original French and when French Foreign Minister Jean-Yves Le Drian was quoted as saying that with the letter, “I answered a question from the LVMH Group.”
The letter was expected to figure prominently in depositions for the case, which were scheduled to begin soon with Arnault himself sitting to answer questions from Tiffany lawyers next month. Tiffany executives in turn would also be deposed by LVMH lawyers.
In the end, it could all just be too much trouble for everyone involved.
Since LVMH’s initial effort to walk away didn’t nix the deal — as, for instance, Sycamore Partners’ move away from its acquisition of Victoria’s Secret did — Arnault and Co. could instead get a price cut and move ahead with integrating Tiffany into its sprawling empire.
Meanwhile, Tiffany, by giving up some of the initial purchase price, could secure most of the long-promised payday for its shareholders.
Both sides also would avoid more legal brinksmanship and can take advantage of the fact that this week the deal received final regulatory approval from the European Union.
It could be that the legal battle, which many saw as getting settled eventually, had simply gotten ugly enough, with each side gaining whatever advantage they could.
“The reason they’re probably now talking is that uncertainty — whether or not they’ll [the deal] be approved — is out of the way,” said fashion attorney Douglas Hand of Hand, Baldachin & Amburgey, who is not involved in the case. “Now we’re out of closing conditions and LVMH is looking at reliance on their termination provision” if they want to get out of the merger agreement.
Hand said LVMH had a tough case to make in court, whether in arguing some material adverse effect existed, that the letter from the French official passed muster or that Tiffany was not operating in the ordinary course of business.
While the two sides were set to meet in court in early January, most cases over disputed deals never get argued before a judge as the two sides come up with some solution that’s good enough in business terms.
“They’re not going to come all the way to meet me, I’m not going to go all the way to meet them, let’s start to show good-faith movement in the direction toward the middle,” Hand said.
If the talks pan out and Tiffany does indeed become the next LVMH maison, damage control is going to have to start soon as the luxury giant presumably makes a hard pivot after arguing in court papers: “The business LVMH proposed to acquire in November 2019 — Tiffany & Co., a consistently highly profitable luxury retail brand — no longer exists. What remains is a mismanaged business that over the first half of 2020 hemorrhaged cash for the first time in a quarter century, with no end to its problems in sight. The sharp decline in foot traffic in malls, which are at the heart of Tiffany’s retail strategy, will have a significant long-term detrimental impact on the company.”
As one person close to the transaction noted, “At some point, the boards have to hash it out and then repair whatever damage there is.”