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LMVH counter-sues Tiffany to avoid takeover bid because 'the pandemic has devastated its business' - but the jewelry giant says it's an attempt to avoid paying the full $16.2 billion purchase price

A war of words between LVMH and Tiffany escalated on Tuesday with the French luxury group describing Tiffany's prospects as 'dismal' and the US jeweler accusing LVMH of improperly trying to renegotiate a takeover deal.

The Louis Vuitton owner's $16billion purchase of Tiffany came close to collapse this month after LVMH said it could not complete the deal by a November 24 deadline, triggering a legal battle.

LVMH, led by billionaire Bernard Arnault, cited an official foreign ministry request to delay closing the deal to January, following trade tensions with the United States and worsening business conditions at Tiffany because of the coronavirus emergency.

Tiffany, in turn, sued LVMH in a Delaware court, accusing it of deliberately stalling completion of the deal, which was agreed last year before the pandemic emerged. 

It is seeking a court order to force LVMH to honor the original deal and a four-day trial is scheduled to begin on January 5. 

On Monday, LVMH filed its countersuit, detailing its accusation that Tiffany was mismanaged during the pandemic.

Luxury goods group LVMH counter-sued Tiffany & Co on Monday, accusing the New York-based jeweler of mismanagement through the coronavirus pandemic (file photo)

Luxury goods group LVMH counter-sued Tiffany & Co on Monday, accusing the New York-based jeweler of mismanagement through the coronavirus pandemic (file photo)

LMVH's latest legal action was in response to a lawsuit Tiffany filed earlier this month accusing the French luxury giant of of deliberately stalling completion of their takeover deal (file photo)

LMVH's latest legal action was in response to a lawsuit Tiffany filed earlier this month accusing the French luxury giant of of deliberately stalling completion of their takeover deal (file photo)

The countersuit described the US jeweler's prospects as 'dismal' and said its decision to cut marketing expenses, take on additional debt and pay regular dividends despite the crisis meant it was a different company from the one LVMH had agreed to buy.

'The business LVMH proposed to acquire in November 2019 -Tiffany & Co, a consistently highly-profitable luxury retail brand, no longer exists,' LVMH said in the document.

Tiffany recorded a net loss of $33million in the first half of 2020, compared to a 17 million euro loss for LVMH's jewelry and watches division, which includes the Bulgari brand.

The French group does not disclose the financial performance of individual brands. Like-for-like sales fell 39 percent at its watches and jewelry division in the first half compared with a 34 percent fall for Tiffany.

TIMELINE: HOW LMVH'S BID TO TAKE OVER TIFFANY CRUMBLED 

November 24, 2019: LMVH announces $16.2billion deal to take over Tiffany at $135 per share - well above the $120 per share it initially offered.

September 9, 2020: Tiffany sues LMVH, accusing it of deliberately stalling completion of the deal and seeking a court order to force LVMH to honor the original deal. A four-day trial is scheduled to begin on January 5, 2021. 

On the same day, LMVH announces that it has abandoned the deal, saying that the French government had requested a delay to assess the threat of proposed US tariffs.

September 28, 2020: LMVH files a countersuit arguing that Tiffany has been mismanaged during the pandemic and calling its prospects 'dismal'. 

November 24, 2020: The deadline for LMVH to finalize its deal with Tiffany. LMVH has said it cannot meet that deadline in part because of trade tensions between France and the US. 

LVMH's argument is that the pandemic provides a 'material adverse effect' allowing it to walk away from the contract.

It also said Tiffany stands to profit 'far more' if the deal proceeds than as a standalone company.

Tiffany's top five executives are in line to receive at least $100million in total compensation if the deal moves forward, LVMH said.

Tiffany replied on Tuesday that it had acted in the best interest of its shareholders and that it only experienced a single quarter of losses before returning to profitability.

'LVMH's specious arguments are yet another blatant attempt to evade its contractual obligation to pay the agreed-upon price for Tiffany,' Tiffany's Chairman Roger Farah said in a statement.

LVMH also reiterated its view that the letter by the French foreign minister asking it to delay closing the deal until January 6 was a legally-binding request prohibiting it from completing the deal by November 24 - the current contractual deadline. It has said it does not want to extend that deadline.

A source close to the matter, asking not to be named, has told Reuters the letter was not binding, an argument Tiffany has seized upon to accuse LVMH of using the document as a pretext to abandon the deal.

Despite the stinging attacks between the two sides, the Delaware judge said during a September 21 hearing he hoped Tiffany and LVMH could have 'productive discussions to avoid the need for litigation', referring to a potential settlement.

Many analysts also think there is room to negotiate a deal at a lower price than the $135 per share LVMH agreed to pay in November, after raising its bid several times.

'We believe a settlement prior to the January 5 court date could be possible as LVMH's case may be difficult depending on the validity of the letter and the material adverse claim,' Cowen analyst Oliver Chen said.

He said that Tiffany's shares price, which has fallen since the dispute began but at around $117 is still well above the pre-bid levels, 'likely indicates a discount is possible'.

A spokesman for LVMH confirmed reports the group had received approval from antitrust regulators in Taiwan, the last competition hurdle aside from the European Union, which is expected to rule in October. 

LMVH is owned by billionaire Bernard Arnault (pictured), the richest man in Europe

LMVH is owned by billionaire Bernard Arnault , the richest man in Europe 

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