LVMH has countersued Tiffany over the firms' $16 billion merger, accusing the jeweler of financial mismanagement

• LVMH countersued Tiffany on Monday, and said it remains confident that it can walk away from its $16 billion takeover of the US jeweler.
• Tiffany breached the agreement by paying out the highest possible dividends during the pandemic, French luxury goods conglomerate LVMH claimed in the countersuit.
• A letter to LVMH from the French government also made it “impossible” to close the deal before the deadline, it added.
• But Tiffany called the counterclaims “baseless and misleading,” and claims that LVMH breached the merger agreement.

French luxury goods giant LVMH countersued Tiffany & Co on Monday, and still has "full confidence" it can walk away from a proposed $16 billion merger because of the US jeweler's financial mismanagement during the pandemic, it said in a statement on Tuesday.

LVMH said that Tiffany didn't consider the risk of a viral outbreak when it made the deal, and paid out the highest possible dividends while it was making losses during the pandemic — something "no other luxury company in the world did," it claimed.

Tiffany called LVMH's counterclaims "baseless and misleading," and said LVMH simply wanted to avoid paying the agreed $16 billion price for Tiffany. It said it was within its rights to make the dividend payments, and said LVMH had violated the merger agreement by contacting the French government.

The countersuit comes after Tiffany sued LVMH on September 9, arguing that the French conglomerate deliberately delayed antitrust proceedings so it wouldn't have to go through with the deal it signed in November 2019. LVMH had said it couldn't close the deal with Tiffany because it received a letter from the French government asking it to delay the transaction until January 2021, which was beyond the acquisition's November 24 contractual deadline.

LVMH: "Impossible" to close the deal before the deadline

In its counterclaims, LVMH said the agreement with Tiffany had no carve-out clause for pandemics under the definition of a so-called "material adverse effect," even though this was a common practice prior to the coronavirus outbreak. "The pandemic, whose effects are devastating and lasting on Tiffany, has irrefutably caused a material adverse effect," LVMH said.

Tiffany also breached its agreement to operate as usual by paying out the highest possible dividends to shareholders, the French company said. "No other luxury company in the world did so during this crisis," LVMH added.

The letter from the French government also made it "impossible" to close the deal before the deadline, LVMH added. LVMH said the letter was a mandatory directive to take part in France's efforts to defend its national interests in a trade dispute with the US.

LVMH filed the claims in Delaware Chancery Court on Monday — 18 days after it originally announced it would countersue.

Tiffany: LVMH's counterclaims are "baseless and misleading"

Tiffany immediately responded to LVMH's counterclaims on Tuesday, calling them "baseless and misleading."

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

The French minister sent the letter in response to an inquiry from LVMH, which is a "clear violation" of LVMH's obligations under the merger agreement, Tiffany said. LVMH still has not provided Tiffany with a copy of the letter despite many requests, it added.

Tiffany has previously said the letter doesn't give LVMH a contractual basis to abandon the deal.

Tiffany also described LVMH's claim of a material adverse effect as "baseless," saying that the company recorded just one quarter of losses before returning to profitability. Despite this, LVMH made what the jeweler described as "unsupported claims," about the damage to Tiffany's business, Tiffany said.

Tiffany also defended its right to pay out dividends under its contract with LVMH.

A US judge last week set a four-day trial on the case beginning January 5.

The judge said during a hearing he hoped Tiffany and LVMH could have "productive discussions to avoid the need for litigation," referring to a potential settlement.