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LVMH isn't buying Tiffany

LVMH Cancels Merger with Tiffany & Co

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The dreamy luxury wedding between LVMH and Tiffany’s will eventually not happen. Last week, French group Louis Vuitton Moët Hennessy confirmed it will not be taking over iconic American jeweller Tiffany’s.

The transaction was the talk of the town for almost a year. 

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The reason? LVMH blames Tiffany’s mismanagement during the first wave of the COVID-19 pandemic. Moreover, the French government backed up LVMH’s withdrawal –  an unlawful statement, according to the American company.

In response, the American group announced on September 5 that it was suing French LVMH for nearly $ 16 billion.

This failed transaction seems to be an additional failed transaction between Washington and Paris. Last year, the White House declared it would increase its import taxes on French products by nearly 25% for wine, cheese and other tricolor products.

A COVID collateral damage

It all seemed like the transaction between LVMH to buy jewelry giant Tiffany’s was about to be completed. 

The buyout, initially estimated at $14.5 billion, escalated then to $16 billion. According to experts, the French group wanted to assert its physical presence across America: while purchasing such an iconic Maison, LVMH was sure to benefit from a radiant image across the pond. 

However, things took a dramatic turn with coronavirus. A quarter later, COVID hit the United States with full force and made LVMH change its mind. 

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On July 27, Bernard Arnault, CEO of the LVMH group, confirmed in an interview that the group lost a lot of money – without disclosing the amount, reports Reuters, even though the press agency reported that the personal wealth of the business tycoon lost $26 billion since the beginning of 2020.

Diplomatic relations on a rocky patch

Back in July, the United States confirmed the increase on the import tax on French products on American soil of nearly 25%, largely on products sold by the LVMH group: luxury leather goods, handbags, beauty products and cosmetics were put at the top of the list of this new regulation.

This law, called the “Probe 301”, counters the French law passed last year fining GAFAMs which would have taken advantage of tax havens in tax-free zones in the European Union, avoiding to pay their taxes on French soil.

At the moment Probe 301 is not implemented, but appears to be having the effect of a thunderclap in trade relations between the two world powers.

Read on Alvexo: “French Group LVMH Might Buy US Tiffany & Co”

What kind of future for Tiffany?

Last week, the American group decided to sue LVMH at the Court of Delaware for the sum of $16 billion. 

On the news of this lawsuit, LVMH stocks fell from $410 to $404. However on September 11th, the share climbed to $417.

“French law does not stipulate a justification for stopping the transaction, simply because the French government decided that it was not a good decision”, reports the press release of the American group.

 In response, LVMH said it would countersue the American group, because according to the French group, its decision was justified with the bad results of Tiffany that struggled to bounce back after the pandemic’s first months.

The above content is considered to be market commentary information and shall not be perceived as independent investment research or investment advice.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.