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Tiffany Sues LVMH For Dumping $16B Deal; Analysts Say This Is Not The End

Tiffany & Co has filed a lawsuit in the US against Louis Vuitton owner LVMH to enforce the $16 billion merger agreement between the two parties.

Shares dropped 6.5% to $113.96 on Wednesday. The move comes after LVMH pulled out of the deal to snap up the US jewelry chain. LVMH said the French government requested the luxury group to delay the acquisition until Jan. 6 next year because of the threat of additional US tariffs against French products. The deal was due to be completed by Nov. 24 this year.

Tiffany (TIF) seeks an order requiring LVMH to abide by its contractual obligation under the merger agreement to complete the transaction on the agreed terms. The jewelry chain said that the lawsuit filed with the Court of Chancery of the State of Delaware shows that LVMH is in breach of its obligations relating to obtaining antitrust clearance, and refutes the French luxury group’s claim that it can call off the deal by arguing that Tiffany has undergone a Material Adverse Effect (MAE) or that the transaction is in some way inconsistent with its “patriotic duties as a French corporation”.

“LVMH has left us no choice but to commence litigation to protect our company and our shareholders,” said Tiffany chairman Roger N. Farah. “LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms. There is no basis under French law for the Foreign Affairs Minister to order a company to breach a valid and binding agreement, and LVMH’s unilateral discussions with the French government without notifying or consulting with Tiffany and its counsel were a further breach of LVMH’s obligations under the Merger Agreement.” 

Earlier on Wednesday, LVMH had said that it received a letter from the French government which due to the US threat of taxes on French products, directed the group to differ the acquisition of Tiffany until after January 6th, 2021. The group said that Tiffany asked to extend the merger agreement date to December 31st, 2020.

“As a results of these elements, the board decided to comply with the Merger Agreement signed in November 2019 which provides, in any event for a closing deadline no later than November 24th, 2020 and officially records that, as it stands, LVMH will therefore not be able to complete the acquisition of Tiffany,” LVMH concluded in the statement.

Shares in Tiffany are down about 15% so far this year, with the $135 average analyst price target implying almost 19% upside potential over the coming year.

Meanwhile, Guggenheim analyst Robert Drbul believes that this is not the last word in the saga.

“Considering the deal was initially negotiated in November 2019 (pre-pandemic), the deal could still be finalized, albeit at a lower price,” Drbul wrote in a note to investors. “We continue to believe LVMH is the optimal buyer for TIF, and TIF is a logical fit within LVMH’s portfolio of brands.”

The analyst maintains a Hold rating on the stock adding that “timing and price remain uncertainties”.

Similarly, Oppenheimer analyst Brian Nagel also noted that the latest developments are likely part of an ongoing negotiation.

“Our best estimate is that there now exists an 80-85% chance (down from 90%-plus) for a deal to occur at or above an acquisition price of $108/share (vs. a current offer of $135/share),” Nagel said.

The rest of the Street shares Drbul’s stock outlook with a Hold analyst consensus. (See TIF stock analysis on TipRanks)

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