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Why Tiffany Shares Dropped 10% Today

By Howard Smith – Updated Sep 9, 2020 at 10:43AM

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The luxury retailer filed a lawsuit against LVMH over a merger agreement.

What happened

Shares of Tiffany (TIF) were down 10% as of 11 a.m. EDT on Wednesday after the jeweler announced it has filed a lawsuit against European luxury retailer LVMH Moet Hennessy -- Louis Vuitton (LVMUY -4.95%)

The dispute involves a previously announced merger agreement; LVMH said it would not be able to meet a Nov. 24 deadline to close the $16 billion acquisition of Tiffany. 

luxury gold watch

Image source: Getty Images.

So what 

The original agreement for LVMH to acquire Tiffany was made on Nov. 24, 2019, with a closing date of Aug. 24, 2020. But the coronavirus pandemic's impact on retailers may have given LVMH cold feet. Tiffany reported a global net sales decline of 45% in its fiscal first quarter, ending April 30, 2020. 

Now what 

The merger agreement allowed for the closing date to be extended to Nov. 24, 2020, if antitrust clearance was the only barrier remaining at the August date. Tiffany elected to extend the date since LVMH had not even filed for antitrust approval in three required jurisdictions as of Aug. 24.  

Tiffany believes this foot-dragging implies that LVMH is trying to back out of the deal, though LVMH didn't officially say so. However, it did claim to reserve its rights to challenge Tiffany's extension. 

Now Tiffany says it was made aware yesterday of a letter dated Aug. 31, 2020, that LVMH said it received from the French government. The letter reportedly asks LVMH to delay the acquisition until January 2021 to better allow France to fight an American tariff on French goods. 

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

The suit was filed in the State of Delaware Court of Chancery.

Howard Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Tiffany & Co. Stock Quote
Tiffany & Co.
TIF
LVMH Moët Hennessy - Louis Vuitton, Société Européenne Stock Quote
LVMH Moët Hennessy - Louis Vuitton, Société Européenne
LVMUY
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