In row with Tiffany, LVMH may find that most sales are
final
Send a link to a friend
[September 18, 2020] By
Jessica DiNapoli
(Reuters) - France's LVMH <LVMH.PA> faces an uphill battle in walking
away from its $16 billion deal to buy U.S. jeweler Tiffany & Co <TIF.N>,
with legal experts noting most mergers which end up in court are
renegotiated rather than dissolved.
Tiffany last week sued LVMH in the Delaware Court of Chancery, the top
U.S. business court, after the maker of Louis Vuitton handbags said it
could not complete the acquisition, citing a French government request
to delay the close and Tiffany's deteriorating business outlook due to
the COVID-19 pandemic.
LVMH has said it will defend itself vigorously. In a filing on
Wednesday, it accused Tiffany of mismanaging the pandemic's financial
fallout and arguing this has triggered a material adverse effect (MAE)
that nullifies their agreement.
But Delaware courts have set a high bar for buyers to walk away from
deals, ever since the Court of Chancery ruled almost two decades ago
that chicken producer Tyson Foods Inc <TSN.N> had to complete its deal
for rival meat company IBP Inc.
That ruling came despite a severe winter that hurt the business of both
companies and issues raised by the U.S. Securities and Exchange
Commission about IBP's financial statements.
"The inclination is to save the deal where it's possible and where it
doesn't defeat the agreement of the parties to the deal," said Larry
Hamermesh, professor emeritus at Delaware Law School.
Tiffany declined to comment. In a prepared statement on Thursday, LVMH
said there are no objective reasons why the upcoming trial should not
take place in a normal timeframe.
"Tiffany clearly fears a serene and fair rendering of justice," LVMH
said in the statement.
A judge will weigh in on the matter for the first time on Monday, when
the court hears Tiffany's request to fast-track the case. The jeweler,
famous for its robin's egg blue packaging, wants a ruling before a Nov.
24 deadline for completing the deal. LVMH has countered that there is no
reason to "move mountains" to conduct a trial quickly.
"The Court of Chancery has stepped up in this emergency to make sure
that disputes are promptly decided on their merits, not by leverage
resulting from delay, something especially important to vulnerable
sellers," said Leo Strine, an attorney at Wachtell, Lipton, Rosen & Katz
and former chief justice of the Delaware Supreme Court.
The legal row is the largest and most high-profile yet in a series of
broken deals due to the COVID-19 pandemic, including mall owner Simon
Property Group Inc's <SPG.N> move to abandon its $3.6 billion
acquisition of Taubman Centers Inc <TCO.N> and private equity firm
Sycamore Partners' decision to dump L Brands Inc's <LB.N> lingerie line
Victoria's Secret.
[to top of second column] |
A woman with
a Louis Vuitton-branded shopping bag looks towards the entrance of a
branch store by LVMH Moet Hennessy Louis Vuitton in Vienna, Austria
October 4, 2018. REUTERS/Lisi Niesner
A 2013 University of Pittsburgh study of 755 planned acquisitions found that
most which experienced MAEs ended up being renegotiated on average at a 15%
lower price.
"There are deals that are canceled, but that is a lower percentage," said David
Denis, one of the authors of the study and a professor of business
administration at the University of Pittsburgh.
To be sure, courts judge cases on their merit. In 2018, German healthcare group
Fresenius SE <FREG.DE> was allowed to walk away from its $4.75 billion
acquisition of Akorn Inc <AKRXQ.PK>, because the Court of Chancery found the
generic drugmaker's dramatic slump amounted to an MAE.
This was a first for a Delaware court and it stunned Wall Street. Even so, the
legal standard for an MAE to be triggered in Delaware remains high, lawyers say.
"Our courts view the reliability and predictability of the court as one of the
more important things that Delaware offers to its constituents," said Greg
Varallo, a partner at law firm Bernstein Litowitz Berger & Grossmann.
Other high-profile deals collapsed without a Delaware Chancery Court judge
declaring an MAE. Energy Transfer LP <ET.N> cited tax problems that allowed it
to walk away from its proposed $20 billion takeover of rival pipeline operator
Williams Cos <WMB.N> in 2016. The court found that Apollo Tyres Ltd <APLO.NS>
had not breached its proposed $2.5 billion acquisition of Cooper Tire & Rubber <CTB.N>
in 2013 after the buyer failed to reach a contract with U.S. workers, allowing
the Indian company to walk away.
"If you're litigating in Delaware and you can find some other basis to get out
of a merger other than an MAE clause, I think you have a better shot," said Jill
Fisch, a professor at the University of Pennsylvania Law School.
Fisch added that LVMH will likely point to a letter from the French government
asking that the deal be delayed as a way to break up the deal without requiring
the judge declare an MAE.
Some 1,900 deals have been canceled, renegotiated or disputed around the world
since the start of the pandemic, according to S&P Global Market Intelligence.
(Reporting by Jessica DiNapoli in New York; Additional reporting by Tom Hals in
Delaware; Editing by Greg Roumeliotis and Daniel Wallis)
[© 2020 Thomson Reuters. All rights
reserved.] Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |