LVMH Moët Hennessy-Louis Vuitton SE was scheduled to acquire Tiffany & Co. no later than August 24th, 2020, but the merger came to a halt when LVMH failed to even apply for antitrust clearance.
Antitrust laws exist to avoid monopolies. If two major companies merge to form one company, there’s a fear that the existence of a huge corporation, which now owns the market shares of both companies involved, might dominate the industry, thereby making it difficult, or even impossible for any other company to compete with them. Since healthy competition promotes innovation and helps drive down prices, it’s necessary for a healthy economy.
As a result, when two major corporations merge to form one company, they have to file for antitrust clearance with the authorities in the markets in which they operate, meaning the authorities look at the market share of the two companies and agree that the merger would not create a monopoly. But according to a recent lawsuit filed by Tiffany, LVMH has not only failed to acquire the antitrust clearance by the agreed-upon date but has failed to even file for antitrust clearance.
The terms of the merger allowed for an extension to November 24th, 2020 if antitrust clearance had not been obtained by August 24th, but the fact that LVMH still has yet to even file for antitrust clearance in two of the three relevant markets raises doubts about whether they’re taking this merger seriously. Tiffany has responded by filing a lawsuit in the Court of Chancery of the State of Delaware.
The lawsuit is asking the court to provide an order that LVMH must abide by the terms of the acquisition, which had been agreed upon by both companies.
Even before the lawsuit was filed the acquisition had been having problems. LVMH had claimed that Tiffany had suffered a Material Adverse Effect (MAE) as a result of the COVID-19 pandemic, and had tried to buy shares of Tiffany at a lower price per share than the price they had agreed upon in the terms of the contract.
Although the pandemic has hit everyone hard, Tiffany pointed out that their losses were no greater than those suffered by comparable luxury brands. In fact, Tiffany did significantly better than other luxury brands, and although it did suffer a quarter of losses, it has since returned to being profitable and is expected to make more profits in the final quarter of 2020 than it did at the same time last year.
When Tiffany filed their lawsuit against LVMH in Delaware, they made sure to deny that LVMH had any right to refuse to acquire Tiffany under the agreed-upon terms, or that it was somehow violating its patriotic duties as a French corporation by going through with the merger.
According to the court filings, a few days after the August deadline had passed, LVMH provided notice to Tiffany that it had received a letter from the Ministre de l’Europe et des Affaires Etrangéres that the U.S. had imposed sanctions against France and that LVMH should avoid closing the deal with Tiffany, as it is a U.S.-based company.
In its lawsuit against LVMH, Tiffany also pointed out that for LVMH to be in communication with the French government before closing on the deal was in violation of the terms of the merger.
At this point, it’s unclear on which side the judge will land, but either way, a lawsuit does not bode well for the beginning of what should be a partnership.
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