Luxury goods giant LVMH cancels $14.5B deal for Tiffany

NEW YORK (AP) — Luxury goods giant LVMH is ending its takeover deal of jewelry retailer Tiffany & Co., saying the French government had requested a delay to assess the threat of proposed U.S. tariffs and amid wider industry troubles caused by the pandemic.

The Paris-based conglomerate said that both the French government and Tiffany had requested that the closing of the deal be postponed by a few months. The French government, it said, wanted to assess the impact of the possible U.S. tariffs on French goods.

As a result, LVMH said, the $14.5 billion deal — which would have been biggest ever in the luxury market and was scheduled to close Nov. 24 — will be canceled.

Tiffany replied that it’s suing to enforce the merger agreement, which was signed in November 2019. The New York company said LVMH’s argument has no basis in French law. Tiffany also said that LVMH hasn’t even attempted to seek the required antitrust approval from three jurisdictions.

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

Shares in Tiffany slid 6% in afternoon trading in New York. Those in LVMH, which owns 75 brands including Christian Dior, Fendi, Givenchy and Tag Heuer, were stable.

The deal’s value came under strain during the coronavirus pandemic, which caused retail sales to plunge around the world. Tiffany’s share price has been trading around $125 a share for weeks - below the $135 per share price that LVMH had agreed to pay last fall, before the pandemic.

Back then, industry experts had said the deal made sense. Tiffany, known for its delicate jewelry, distinctive blue boxes and an Audrey Hepburn movie, had been trying to transform its brand to appeal to younger and more digital shoppers, and could have used an owner with deep pockets to help expand.

LVMH, led by billionaire Bernard Arnault, had thought the deal would strengthen its position in high-end jewelry and in the U.S. market. LVMH was also making a bet on China’s economy, where Tiffany had been expanding its presence.

The pandemic threw all those assumptions and plans in doubt, and the threat of new tariffs between the U.S. and Europe was cited as a further complicating issue.

Before COVID, the global market for personal luxury goods was solid, reaching a record high of $307.1 billion (260 billion euros) in 2018 — a 6% increase from the year before, according to consulting firm Bain & Co. That sector slipped by 2.1% to $331.9 (281 billion euros) last year, according to Bain estimates. But given COVID’s financial fallout and the shutdown of tourism worldwide, those sales could drop by 20% to 35% in 2020, Bain estimates. Bain expects that personal luxury sales won’t recover to pre-COVID levels until 2022 and 2023.

Tiffany’s global sales declined 29% during the fiscal second quarter ended July 31, following a 45% drop in the fiscal first quarter.

Last year, France sought to impose a tax on global tech giants including Google, Amazon and Facebook. The French tech tax is aimed at “establishing tax justice.” France wants digital companies to pay their fair share of taxes in countries where they make money instead of using tax havens, and is pushing for an international agreement on the issue.

In response to the tech tax, the U.S. threatened to slap 100% tariffs on $2.4 billion of French products.

The two sides are at a tense truce as France has said it would delay collection of the digital tax until December, parking the issue until after the next U.S. presidential election where Trump hopes to secure another four-year term.

In a press conference on Wednesday, French government spokesman Gabriel Attal confirmed that a letter was sent by French Foreign Minister Jean-Yves Le Drian to LVMH and referred to international talks about U.S. tariffs as a “very important issue.”

“The (French) government is neither naive nor passive. We have objectives that we want to reach,” he said. He wouldn’t further elaborate and said that Le Drian is expected to express his views on the issue in the coming hours.

CFO Jean Jacques Guiony of the LVMH insisted in a phone interview with reporters that the letter received Sept. 1 from the French government was legal and valid and left the group no choice.

“I don’t think their objective is to please or not to please LVMH. They don’t give a damn…,” he said. “The letter is legally valid, is legal. When you get such a legally binding and legally valid letter, you just apply it…We will apply it.”

Asked about lowering the price to keep the deal alive, he said that had not even been considered as there is no article in the contract that would allow that.

“The deal cannot take place .. we are prohibited from closing this transaction … we have no choice.”

As for the threatened law suit, the CFO said that he doesn’t “see a way in between” the arguments the two sides could put forth – we don’t do the deal on Nov. 24 and they saying that you have to do it anyway, he said.

“We’ll see what happens.”

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AP Writers Sylvie Corbet ad Elaine Ganley in Paris contributed to this report.

Associated Press

Backing off auto tariffs, US and EU agree to more talks

WASHINGTON — President Donald Trump and European leaders pulled back from the brink of a trade war over autos Wednesday and agreed to open talks to tear down trade barriers between the United States and the European Union.

But while politicians and businesses welcomed the deal Thursday, the agreement was vague, the negotiations are sure to be contentious and the United States remains embroiled in major trade disputes with China and other countries.

In a hastily called Rose Garden appearance with Trump, European Commission President Jean-Claude Juncker said the U.S. and the EU had agreed to hold off on new tariffs, suggesting that the United States will suspend plans to start taxing European auto imports — a move that would have marked a major escalation in trade tensions between the allies.


Trump also said the EU had agreed to buy "a lot of soybeans" and increase its imports of liquefied natural gas from the U.S. And the two agreed to resolve a dispute over U.S. tariffs on steel and aluminum.

"It's encouraging that they're talking about freer trade rather than trade barriers and an escalating tariff war," said Rufus Yerxa, president of the National Foreign Trade Council and a former U.S. trade official. But he said reaching a detailed trade agreement with the EU would likely prove difficult.


The tone was friendlier than it has been. During a recent European trip, Trump referred to the EU as a "foe, what they do to us in trade." Juncker, after Trump imposed tariffs on steel and aluminum imports, said in March that "this is basically a stupid process, the fact that we have to do this. But we have to do it. We can also do stupid."

On Wednesday, Trump and Juncker said they have agreed to work toward "zero tariffs" and "zero subsidies" on non-automotive goods.

Trump told reporters it was a "very big day for free and fair trade" and later tweeted a photo of himself and Juncker in an embrace, with Juncker kissing his cheek.

"Obviously the European Union, as represented by @JunckerEU and the United States, as represented by yours truly, love each other!" he wrote.

The agreement was welcomed by political and business leaders in Germany, the EU's biggest economy, though their relief was tempered with caution that details have to be firmed up.

"Very demanding and intensive negotiations lie ahead of us," German Economy Minister Peter Altmaier said, vowing that "we will represent and defend our European interests just as emphatically as the U.S. does with its interests." He said the Trump-Juncker accord was "a good start — it takes away many people's worries that the global economy could suffer serious damage in the coming months from a trade war."

Trump campaigned on a vow to get tough on trading partners he accuses of taking advantage of bad trade deals to run up huge trade surpluses with the U.S.

He has slapped taxes on imported steel and aluminum, saying they pose a threat to U.S. national security. The U.S. and EU are now working to resolve their differences over steel and aluminum — but the tariffs are still in place. And they would continue to hit U.S. trading partners like Canada, Mexico and Japan even if the U.S. and the EU cut a deal.

Whatever progress was achieved Wednesday could provide some relief for U.S. automakers. The escalating trade war and tariffs on steel and aluminum had put pressure on auto companies' earnings. General Motors slashed its outlook, and shares of Ford Motor Co. and auto parts companies have fallen.

"Our biggest exposure, our biggest unmitigated exposure, is really steel and aluminum when you look at all of the commodities," GM CEO Mary Barra said Wednesday.

Trump has also imposed tariffs on $34 billion of Chinese imports — a figure he has threatened to raise to $500 billion — in a dispute over Beijing's aggressive drive to supplant U.S. technological dominance.

China has counterpunched with tariffs on American products, including soybeans and pork — a shot at Trump supporters in the U.S. heartland.

The EU is stepping in to ease some of U.S. farmers' pain. Juncker said the EU "can import more soybeans from the U.S., and it will be done." The EU later said it would not buy more than its market needs but divert some of purchases from other countries in favor of U.S. soybeans, which are now cheaper due to China's tariffs on them.

Mary Lovely, a Syracuse University economist who studies trade, said, "The Chinese are not going to be buying our soybeans, so almost by musical chairs our soybeans are going to Europe." The trouble is, China last year imported $12.3 billion in U.S. soybeans, the EU just $1.6 billion.

Trump's announcement stunned lawmakers who arrived at the White House ready to unload concerns over the administration's trade policies only to be quickly ushered into Rose Garden for what the chairman of the Senate Agriculture Committee called "quite a startling" development.

"I think everybody sort of changed what they were going to say," said Sen. Pat Roberts, R-Kan.

Lawmakers said they still needed to see details of the agreement with the EU as well as progress on the other deals. But they said the breakthrough announcement was a step in the right direction.

"We have more confidence in him now than we did before," said Rep. Mike Conaway, R-Texas, the chairman of the House Agriculture Committee.

The White House announcement came as the Trump administration announced a final rule aimed at speeding up approval of applications for small-scale exports of liquefied natural gas. The Trump administration has made LNG exports a priority, arguing that they help the economy and enhance geopolitical stability in countries that purchase U.S. gas.

Juncker said the two sides also agreed to work together to reform the World Trade Organization, which Trump has vehemently criticized as being unfair to the U.S.

The auto tariffs would have significantly raised the stakes in the dispute. Taxes on EU cars, trucks and auto parts could have hit goods that were worth $335 billion last year. The European Union had warned it would retaliate with tariffs on products worth $20 billion.

Daniel Ikenson, director of trade studies at the libertarian Cato Institute, warned that the fight could flare up again if Trump grows impatient with Europe.

"Auto tariffs are looming unless the EU buys more U.S. stuff and does other things Trump demands," he said.

source: philstar.com