Online with Tiffany, LVMH could find that most sales are final
(Reuters) – French LVMH faces an uphill battle to drop its $ 16 billion deal to buy US jeweler Tiffany & Co, with legal experts noting that most mergers that end up in court are renegotiated rather than dissolved.
Last week, Tiffany sued LVMH in the Delaware Court of Chancellery, the highest U.S. commercial court, after handbag maker Louis Vuitton said it could not complete the acquisition, citing a claim of the French government to delay the closure and the deterioration of Tiffany’s business prospects due to the Covid19 pandemic.
LVMH has said it will defend itself vigorously. In a case filed Wednesday, he accused Tiffany of mismanaging the financial fallout from the pandemic and arguing that it triggered a Significant Adverse Effect (AEM) that nullifies their deal.
But Delaware courts have set the bar high for buyers to back out of the deals, since the Court of Chancery ruled nearly two decades ago that chicken farmer Tyson Foods Inc must close its deal with the company. rival meat IBP Inc.
The move came despite a harsh winter that affected both companies’ business and concerns raised by the United States Securities and Exchange Commission over IBP’s financial statements.
“The inclination is to save the agreement where possible and where it does not conflict with the agreement of the parties to the agreement,” said Larry Hamermesh, professor emeritus at Delaware Law School.
Tiffany declined to comment. In a statement prepared Thursday, LVMH said there was no objective reason why the next trial should not take place within a normal time frame.
“Tiffany clearly fears calm and fair justice,” LVMH said in the statement.
A judge will rule on the case for the first time on Monday, when the court hears Tiffany’s request to expedite the case. The jeweler, famous for its robin egg blue packaging, wants a decision before the Nov. 24 deadline to close the deal. LVMH replied that there was no reason to “move mountains” to bring a lawsuit quickly.
“The Court of Chancery intervened in this emergency to ensure that disputes are quickly resolved on the merits, and not by leverage resulting from delay, something particularly important for vulnerable sellers,” said Leo Strine, attorney at Wachtell, Lipton, Rosen & Katz and former chief justice of the Delaware Supreme Court.
The legal dispute is the largest and most high-profile to date in a series of broken agreements due to the COVID-19 pandemic, including shopping center owner Simon Property Group Inc’s decision to abandon its acquisition $ 3.6 billion from Taubman Centers Inc and private equity firm Sycamore Partners’ decision to get rid of L Brands Inc.’s Victoria’s Secret lingerie line.
A 2013 University of Pittsburgh study of 755 planned acquisitions found that most acquisitions that experienced MAEs ended up being renegotiated on average at a price 15% lower.
“There are deals that get canceled, but it’s a lower percentage,” said David Denis, one of the study’s authors and professor of business administration at the University of Pittsburgh.
Of course, the courts judge cases on their merits. In 2018, German healthcare group Fresenius SE was allowed to drop its $ 4.75 billion acquisition of Akorn Inc as the Chancellery Court ruled that the generic drugmaker’s dramatic collapse amounted to to an EAW.
It was a first for a Delaware court and it stunned Wall Street. Even so, the legal standard for an EAW to be triggered in Delaware remains high, lawyers say.
“Our courts consider the reliability and predictability of the court to be one of the most important things Delaware offers to its constituents,” said Greg Varallo, partner at the law firm Bernstein Litowitz Berger & Grossmann.
Other high-profile deals collapsed without a Delaware Chancery Court judge declaring an EAW. Energy Transfer LP cited tax problems that allowed it to drop its $ 20 billion plan to buy rival pipeline operator Williams Cos in 2016. The court found that Apollo Tires Ltd had not violated its proposed $ 2.5 billion acquisition of Cooper Tire & Rubber in 2013 after the buyer failed to secure a contract with American workers, which allowed the Indian company to pull out.
“If you are litigating in Delaware and can find another basis for getting out of a merger other than an EAW clause, I think you have a better chance,” said Jill Fisch, professor at the law school of the University of Pennsylvania.
Fisch added that LVMH will likely mention a letter from the French government asking that the deal be delayed in order to break the deal without the judge declaring an EAW.
Some 1,900 deals have been canceled, renegotiated or challenged 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