LVMH Nixes $16.2B Tiffany Deal, Cites Tariffs As Stumbling Block

French luxury goods giant LVMH Moët Hennessy-Louis Vuitton SE has decided to abandon plans to acquire Tiffany & Co. At $16.2B, the deal would have been the biggest ever in the luxury retail sector. 

In offering a reason for the move, LVMH cited a letter from the French government asking the company to delay the acquisition until early 2021 in response to tariffs on French goods that the U.S. government has threatened. LVMH also said that Tiffany itself had requested a delay in the deal past the Nov. 24 deadline that had been agreed to originally.

"As it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co.," LVMH said in a statement.

For its part, Tiffany has filed a lawsuit against LVMH to compel it to continue with the deal, which was inked in pre-pandemic late 2019.

“We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms," Tiffany Chairman Roger Farah said in a statement. 

"But the simple facts are that 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," Farah said.

Tiffany has had a hard year, reporting that worldwide sales for its fiscal second quarter ended July 31 were down 29% compared with the same period in 2019, though that was an improvement over its first quarter of this year ended April 30, when sales dropped 45% year-over-year.

Those declines, which the company attributes to the coronavirus pandemic, resulted in a net loss of $33M for the company during the first half of 2020. During the same period in 2019, Tiffany posted net earnings of $262M.

The luxury sector as a whole took a hit during the first half, with revenue drops of more than 20% in some cases, The Wall Street Journal reports, as well-heeled shoppers were obliged to stay home.

Some of the biggest luxury brands have held some of their ground, leaving giants such as LVMH, which owns 70 different brands, in relatively strong positions. Investors have taken note, with shares in LVMH trading for about €404/share as of Wednesday, up from a recent low of about €288/share on March 18.