What just happened?

The luxury retail sector has recently witnessed the horrendous end of a relationship between two magnets in the industry, LVMH and Tiffany and Co. Last year, the global conglomerate, LVMH announced that it would be going ahead with the acquisition of Tiffany, however, in September 2020, LVMH backtracked and decided against the 16.2-billion-dollar acquisition due to the ongoing trade war between their home state of France and the United States[1]. The failure of this potential match would have no doubt caused some upset with those interested in the luxury goods market. However, this failed acquisition was brought back into the spotlight as Tiffany and Co, rejected the claim asserted by LVMH, by stating that LVMH was acting out of its own volition and not in some patriotic faith of country. As this case plays out, there is something for us to remember as lawyers- when does our liability start during a deal?

What does this mean?

In order to understand the reason behind the failed acquisition, it is important to remember that the US and Europe are currently locked in a trade war over an increase in tariffs by the US on EU goods, ranging from aircrafts to cheese[2]. As a form of retaliation, the EU has imposed tariffs on the intellectual properties on big tech companies such as Google, Amazon and Facebook[3]. This ongoing trade war between these Trans-Atlantic nations have soured and slowed down various deals, including the one between LVMH and Tiffany.

Therefore, the would have been acquisition of Tiffany was a match made in heaven and the purchase would have made sense during these trying times, as most companies like Tiffany could use strong financial backing. In fact, LVMH had recently submitted its proposal to the European Commission for the approval of its merger and was expected to get this ahead of its November 24th deadline[4]. This therefore illustrates good faith, despite the accusations of LVMH trying to back out on the deal. Conversely, it is still a mystery as to why LVMH unilaterally decided to pull out from the deal, and the public is quite puzzled by this move. A source from the French Government stated that the French government simply requested LVMH to re-think the deal and that it was a non-binding request.[5] If this were the case, it would mean LVMH simply used this trade war excuse as a front to end a deal; it had no probable interest in.

Tiffany in a 114-page complaint explains the tale of the deal came together and fell apart[6]. In summary, the deal was going according to plan, till the time the current pandemic arose. In its complaint, Tiffany argued that in June, they received the ‘corporate cold-shoulder’ treatment from LVMH and noticed that the holding company was looking for ways to back out from the deal[7]. As the two companies battle it out in a courtroom, one thing becomes clear, it is imperative to understand when one’s liability will arise during a transaction.

How does this affect the legal industry

Any lawyer worth their salt would know that liability arises at different stages during a transaction in every jurisdiction. One of the issues a court will look into is whether the purchaser was liable to proceed with the agreement. The French Civil Code[8] employs a strict adherence to the good faith principle and as such any deviance from it can result in paying the aggrieved party damages[9]. Therefore, liability under the French law can occur before the contract was finalized, unlike the English law where liability even if it arises during negotiations can only be claimed post completion of negotiations.[10]

These nuances between the jurisdictions can greatly affect the success of any transactions. Acquisitions are a complex transaction regardless of the purchase amount; therefore, it becomes imperative to understand the differences in contract law before proceeding with any talks. You never know when your liability might arise! In the matter between LVMH and Tiffany, the matter is to be decided by the Courts of Delaware, and US contract law has rarely allowed for a buyer to walk away from its duties. However, regardless of the outcome, the reputation of LVMH in respect of honoring their contracts may have been tarnished.

Written by Shika Nadig

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#FreshfieldsBruckhausDeringerLLP #Allen&Overy #CliffordChance #Linklaters #Slaughter&May #BakerMckenzie

References:

[1] Noemie Bisserbe and Matthew Dalton, ‘LVMH Sought French Government Help in Dropping Tiffany Takeover’ (Wall Street Journal, 17th September 2020) https://www.wsj.com/articles/lvmh-sought-french-government-help-in-dropping-tiffany-takeover-11600366835 Accessed on 19th September 2020

[2] David Meyer, ‘Europe wants the U.S. to immediately cancel its $7.5 billion tariff offensive. Here’s why’ (Fortune, 24th June 2020) https://fortune.com/2020/07/24/eu-airbus-us-tariffs-wto/ Accessed on 20th September 2020

[3] Jakob Hanke Vela, ‘EU looks to target Big Tech in trade war with America’ (Politico, 20th July 2020) https://www.politico.eu/article/eu-looks-to-target-big-tech-in-trade-war-with-america/ . Accessed on 20th September 2020

[4] Kim Bhasin, ‘LVMH Submits $16 Billion Tiffany Deal for European Approval’ (Bloomberg News, 19th September 2020) https://www.bloomberg.com/news/articles/2020-09-18/lvmh-submits-16-billion-tiffany-deal-for-european-approval Accessed on 20th September 2020

[5] Noemie Bisserbe and Matthew Dalton, ‘LVMH Sought French Government Help in Dropping Tiffany Takeover’ (Wall Street Journal, 17th September 2020) https://www.wsj.com/articles/lvmh-sought-french-government-help-in-dropping-tiffany-takeover-11600366835 Accessed on 19th September 2020

[6] Rob Bates, ‘Breakup at Tiffany’s: How The LVMH Deal Fell Apart’ (JCK Online, 16 September 2020) https://www.jckonline.com/editorial-article/tiffany-lvmh-deal-fell-apart/ Accessed on 20th September 2020

[7] For a more detailed timeline of events, LawMiracle suggests reading the JCK online article. https://www.jckonline.com/editorial-article/tiffany-lvmh-deal-fell-apart/

[8] Fabrice Fages and Myria Saarinen, ‘Complex Litigiation: Chapter Two- France’ https://fr.lw.com/thoughtLeadership/complex-commercial-litigation-law-review-France-2018

[9] Article 1112-1 (Section 6), French Civil Code.

[10] House of Lords in Investors Compensation Scheme Ltd v. West Bromwich Building Society, [1998] W.L.R. 896, p. 913.

Disclaimer: This article (and any information accessed through links in this article) is provided for information purposes only and does not constitute legal advice.