09/17/2020

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LVMH Calls off Tiffany Takeover



Canceling a $16.2 Billion Deal

LVMH (LVMUY), the luxury-goods giant, called off its planned $16.2 billion takeover of Tiffany & Co. (TIF). Tiffany shares tumbled 11% on the news while LVMH shares traded 0.3% lower in Paris.

The deal between LVMH and Tiffany & Co. was orchestrated in November 2019. Up until then, LVMH had been on somewhat of an acquisition spree, buying brands like Dom Perignon Champagne and Dior fashions. The French conglomerate saw buying the iconic Tiffany & Co. brand as a way to bolster its presence in the US and in the jewelry industry. However, trade tensions around the world and the coronavirus pandemic have changed everything.

Trade Tensions Between Washington and Paris

LVMH cited worries about trade tensions between France and the Trump administration as its main reason for backing out of the acquisition. Washington and Paris have clashed recently as France and other European countries make plans to tax tech companies like Facebook (FB) and Google (GOOGL). The White House has threatened retaliatory tariffs for any country that puts these taxes in place.

LVMH said the French foreign ministry wrote to the company asking it to postpone the acquisition until January 6, 2021. This request from the French government to delay the deal may have been in response to the White House’s threats about tariffs on French goods.

Tiffany & Co. accused LVMH of using the letter as an excuse to change its mind about the acquisition. The jewelry maker filed a lawsuit in Delaware, where LVMH’s US operations are based, saying LVMH must comply with the agreement.

The Pandemic’s Impact on the Luxury Goods Industry

Trade tensions are not the only reason why the luxury goods industry is seeing changes and difficulties currently. The COVID-19 pandemic has also upended the market for high-end brand items. Luxury brands have long counted on tourists from China and the US traveling to destinations like Paris and Milan to buy big-ticket designer goods. Travel restrictions and trade tensions could mean that this business model will be forever changed. Additionally, many weddings and other special events have been canceled during the pandemic, which has hurt the jewelry industry.

Tiffany’s global net sales sank 29% during the quarter ending July 31. During the previous quarter, the company’s net sales dropped 45%.

Investors will be watching closely to see how negotiations between Tiffany’s and LVMH unfold, and what the result of this conflict could indicate about the future of the luxury goods industry.


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