Louis Vuitton Strikes a Luxury Deal: $420 Million in Savings

The road to completing LVMH Moët Hennessy Louis Vuitton SE’s (“Louis Vuitton”) acquisition of Tiffany & Co. (“Tiffany”) was a bumpy one. Louis Vuitton and Tiffany announced they agreed on a revised merger agreement (the “Merger Agreement”), and closed the transaction on January 7, 2021 (LVMH). Over the past year, the two companies have had a rocky relationship. Louis Vuitton, the buyer, originally walked away from the initial agreement, and Tiffany sued to keep the deal moving forward. (Angelina Rascouet & Kim Bhasin, Bloomberg). The revised deal is now worth almost $16 billion. Id.

The original merger agreement, which was reached in November of 2019, was for $16.2 billion or $135 per share. (Pamela Danziger, Forbes). Louis Vuitton, in an attempt to back out of the merger, claimed Tiffany failed to meet its contractual obligations, and that Tiffany underwent a Material Adverse Effect. (LVMH). Under the initial merger agreement, Louis Vuitton assumed all financial risk related to adverse industry trends or economic conditions, a risk that materialized in the midst of the COVID-19 pandemic. Id. Tiffany filed a lawsuit in the Court of Chancery of the State of Delaware to enforce the original merger agreement. Id.

Roger N. Farah, Chairman of Tiffany’s Board, said “We regret having to take this action but LVMH has left us no choice but to commence litigation to protect our company and our shareholders. Tiffany is confident it has complied with all of its obligations under the Merger Agreement and is committed to completing the transaction on the terms agreed to last year. Tiffany expects the same of LVMH.” Id.

Louis Vuitton assumed all antitrust-clearance risk under the initial agreement, and as of August 24, 2020, known as either the outside date or the closing date under the Merger Agreement, Louis Vuitton had not filed for antitrust approvals in three required jurisdictions. Id. As such, Tiffany elected to extend the outside date to November 24, 2020. Id. Louis Vuitton publicized the French Government’s request for the company to postpone closing the deal. (Dealbook Newsletter, The New York Times).

Another issue of contention is that under the November 2019 merger agreement, Tiffany would “continue to declare and pay its regular quarterly dividend in an amount not to exceed $0.58 per share and in a manner consistent with past practice.” (David Dawkins, Forbes). Since 1988, and even during periods of economic downturn, Tiffany has never failed to pay a quarterly dividend. Id. Under the revised agreement, Tiffany will pay out its regular dividend of $0.58, despite the decreased purchase price. (Angelina Rascouet & Kim Bhasin, Bloomberg). Tiffany declared a quarterly dividend of $0.58 per share, or $2.32 annualized, which was payable on December 22, 2020. (Street Insider).

Once the deal was back on track, Louis Vuitton agreed to pay $131.50 per share or $15.8 billion. (Pamela Danziger, Forbes). With Tiffany’s shareholders’ approval of the merger, the French company will see $420 million in savings on the deal, which will go down as the largest luxury deal to date. (Vanessa Friedman & Elizabeth Paton, The New York Times). Louis Vuitton’s CEO, Bernard Arnault, said “We are convinced as ever of the formidable potential of the Tiffany brand and believe that LVMH is the right home for Tiffany and its employees during this exciting chapter.” (Pamela Danziger, Forbes).

Prior to the shareholders’ approval of the merger, Erin Carranza, Ph.D., and Vice President of Consumer Psychology at the research firm Chadwick Martin Bailey, provided insight into whether Tiffany will be able to get its 14,000 plus shareholders to approve the merger. Id. Carranza foresees a potential culture clash, as Louis Vuitton has had “repeated claims of mismanagement.” Id. It could prove difficult to build a “collective social identity” if Parisian management styles do not match with Tiffany’s American ways. Carranza said “a lot of people don’t know how aggressive LVMH is in their business strategies,” and “I think it could end badly for Tiffany, especially given all the drama that ensued during the whole process, especially if people feel Paris is being high-handed.” Id.

Ninety-nine percent of Tiffany’s shareholders approved the merger contrary to Carranza’s concerns, which transformed the 183-year old company from a publicly traded entity to a subsidiary of Louis Vuitton. (The Fashion Law). The ugly dispute between the parties finally came to an end, as Bernard Arnault, Chairman and Chief Executive Officer of Louis Vuitton stated, “I am pleased to welcome Tiffany and all their talented employees in our Group. Tiffany is an iconic brand and a quintessential emblem of the global jewelry sector. We are committed to supporting Tiffany, a brand that is synonymous with love and whose Blue Box is revered around the world, with the same dedication and passion that we have applied to each of our prestigious Maisons over the years. We are optimistic about Tiffany’s ability to accelerate its growth, innovate and remain at the forefront of our discerning customers’ most cherished life achievements and memories. I would like to thank Alessandro Bogliolo and his team for their dedication to Tiffany and their work over the past three years, especially during this challenging period.” (LVMH).