TIF - Tiffany & Co

[VersaillesinNY]

Bernard Arnault is a great lobbyist, as highlighted in a separate Marianne article. Arnault & sons are well connected to Brigitte Macron (the French President's wife), not only she is dressed by Louis Vuitton for free, but she was the French teacher of two of Arnault sons.

 

https://www.marianne.net/economie/lvmh-et-bernard-arnault-le-lobbying-version-grand-luxe

 

There is no doubt that the official letter was requested by Bernard Arnault as a joker card to get out of a signed deal. His word & reputation have been damaged.

 

IMO, the Delaware judge should dismiss this letter and fine LVMH with at least $350 million to be delivered in Louis Vuitton trunks to Tiffany's HQ!

[fareastwarriors]

In row with Tiffany, LVMH may find that most sales are final

 

https://www.reuters.com/article/us-tiffany-m-a-lvmh-delaware-analysis/in-row-with-tiffany-lvmh-may-find-that-most-sales-are-final-idUSKBN2691N8

 

 

A 2013 University of Pittsburgh study of 755 planned acquisitions found that most which experienced MAEs ended up being renegotiated on average at a 15% lower price.

[swropfef]

Three scenarios:

1-LVMH is 'forced' to respect its already negotiated part of the deal, outcome: 135

Tiffany's case appears strong but Mr. Arnault is an artist. So odds of this seem relatively low.

2-LVMH obtains, somehow, a lower deal around 120-125

i think that's the most likely scenario because LVMH still likely wants Tiffany's and may be using the moot aspects of force majeure to obtain concessions.

3-The deal falls apart, outcome (depends on timing): stock gravitating down to 80-100

This is just part of the game now and may involve some kind of buyer's remorse although it seems this sub-component is unlikely as extravagance is part of LVMH's DNA. i'd say the market is quite optimistic about this deal, the timing of the deal if any (this could be a lengthy process) and Tiffany's underlying business at this point

 

The merger agreement does not contain a force majeure clause.

[Cigarbutt]

Three scenarios:...

2-LVMH obtains, somehow, a lower deal around 120-125

i think that's the most likely scenario because LVMH still likely wants Tiffany's and may be using the moot aspects of force majeure to obtain concessions.

The merger agreement does not contain a force majeure clause.

If everything were so simple, the delays in courts would not be so long. :) Even the definition of urgency often needs to be debated extensively..

i understand that "force majeure", "act of God", or "pandemic" do not specifically appear but the following does:

"geopolitical conditions, the outbreak or escalation of hostilities (including the Hong Kong protests and the “Yellow Vest” movement), any acts of war (whether or

not declared), sabotage (including cyberattacks) or terrorism, or any escalation or worsening of any such acts of hostilities, war, sabotage or terrorism threatened or

underway as of the date of this Agreement, any hurricane, tornado, flood, earthquake or other natural disaster".

Isn't there room for argument? This is a sequential three-step anlaysis and the judge needs to accept the first step as an equivalent of formal force majeure. It may be achievable?

Look at precedents and also look at the legal link submitted by writser in reply #7: "In business lawyer-speak, force majeures are usually called “material adverse change/material adverse event” (or MAC/MAE) provisions; but they work pretty much the same way".

Common sense would indicate that there may be room for negotiations?

[fareastwarriors]

 

LVMH says submits disputed Tiffany takeover for EU clearance

 

 

https://www.reuters.com/article/businessNews/idUSKBN2692XB

[Gregmal]

This is just part of the dance when things go south. They almost always get settled. Dow/Rohm while not exactly the same, is probably a reasonable situation worth getting familiar with. The GFC actually caused real damage, and it still got done. Thats what the market is saying he with TIF and also TCO.

[Haasje]

I'm not so sure this gets settled at a lower deal price although it seems to be the market interpretation. The thing is that there is very little in the merger agreement that gives LVMH any real options. Many clauses I've looked out turns out they've signed to one of the worst possible versions.

 

I expect LVMH to argue that Tiffany did not live up to the standard of "conducting its business in all material respects as if in the Ordinary Course of Business" they can then argue that constitutes of a MAE.

 

But it seems like an incredible longshot to turn that into a credible argument.

 

I definitely have some questions of things I'm not sure about but this doesn't seem to be a great spot at all for LVMH to play a game of chicken going into Delaware.

 

Some professionals seem to think the break price should be adjusted upwards because they expect the underlying would have done well (given peers/index) in the meantime. Personally, I haven't dared to factor that in and I'm not completely convinced.

 

 

[ValueMaven]

wouldnt touch this with a 100-foot pole.  Not worth the risk at all. 

 

I walked past their 5th ave story yday in NYC - which generates historically 7% of total sales I believe.  Not a single person there!! 

[fareastwarriors]

Tiffany Says LVMH Can’t Blame French Government for Nixing Deal

 

LVMH can’t rely on a letter from the French government requesting a delay of its $16 billion purchase of Tiffany & Co. to justify its decision to pull out of the deal, the U.S. jewelry retailer said in a court filing.

 

The letter from French Foreign Minister Jean-Yves Le Drian seeking a delay as part of a trade dispute with the U.S. doesn’t amount to a “legal restraint” under the acquisition agreement, Tiffany said in a Delaware Chancery Court filing made public Monday.

 

“LVMH nowhere contends that the Foreign Minister has any jurisdiction over the transaction,” because they know European Union regulators handle antitrust reviews and Le Drian can’t stop the deal, the U.S. luxury jewelry chain contends in the filing.

 

Jonathan Doorley, a U.S.-based spokesman for the maker of Louis Vuitton bags and shoes, declined to comment on the filing.

 

The deal was announced last November, but friction between LVMH and Tiffany emerged in March as the depth of the economic fallout from the pandemic became apparent. LVMH earlier this month cited Le Drian’s letter in seeking to cancel the purchase and later also lambasted New York-based Tiffany’s response to Covid-19.

 

Tiffany sued to force LVMH to go forward with the acquisition, saying in a court filing that LVMH is trying to use the luxury downturn from the pandemic to negotiate a lower deal price.

 

A judge will hear arguments later today on Tiffany’s request to fast-track its suit. The deal has a Nov. 24 closing deadline, and Tiffany is hoping the judge will rule on whether LVMH must proceed with the deal by that date.

 

The case is Tiffany & Co. v. LVMH Moet-Hennessy-Louis Vuitton SE, 2020-0768, Delaware Chancery Court (Dover).

 

 

https://www.bloomberg.com/news/articles/2020-09-21/tiffany-says-lvmh-can-t-blame-french-government-for-nixing-deal?srnd=premium

 

 

 

 

Tiffany Suit Over Canceled LVMH Buyout Put on Fast Track

 

Tiffany & Co. persuaded a judge to fast-track its lawsuit claiming LVMH is relying on faulty legal pretexts to cancel a $16 billion buyout of the U.S. luxury jewelry store chain.

 

Delaware Chancery Court Judge Joseph Slights III on Monday rejected a request by the maker of Louis Vuitton bags and Moet & Chandon champagne that he put off the case until well into next year. But the judge also denied Tiffany’s request to have the matter decided before the deal’s Nov. 24 closing date, setting a trial for Jan. 5, 2021.

 

The ruling puts pressure on Paris-based LVMH to justify cancellation of the luxury industry’s largest-ever deal. LVMH has previously pointed to a letter from the French government seeking a delay in closing the deal because of a trade dispute with the U.S. It has also said its decision was driven by management missteps by Tiffany during the pandemic, such as continuing to pay dividends.

 

Jonathan Doorley, a U.S.-based spokesman for LVMH didn’t immediately return an email seeking comment on Slights’ ruling.

 

Luxury Discount

Tiffany, which sued LVMH this month, says in its court filings that LVMH is trying to negotiate a lower deal price in the wake of the downturn in the luxury market.

 

As an example of LVMH‘s alleged bad faith, Tiffany has pointed to the French company’s delay in filing for a required European Commission antitrust review. LVMH, which filed for the review on Sept. 18, has denied the allegation, saying the delay was due to slowdowns at the regulator due to the pandemic. The commission said Monday it will submit its findings by Oct. 26.

 

For Tiffany, a collapse of the deal would bring uncertainty with investors missing out on the promised $135 a share. On Monday, shares in Tiffany were at $115.21 in after-hours trading in New York.

 

While recent post-lockdown trends show a relative improvement for the brand known for its robin’s-egg-blue packaging, it isn’t out of the woods with international tourism still halted and Tiffany’s flagship store on New York’s Fifth Avenue virtually empty.

 

For LVMH, which is controlled by French billionaire Bernard Arnault, getting out of the deal would prevent it from overpaying for an asset that’s recently lost its luster and would need heavy investments in coming years to compete with brands like Cie Financiere Richemont SA’s Cartier.

 

The stakes are particularly high this time for Arnault, who is known as the wolf in cashmere. The fight with Tiffany risks turning into a lengthy and expensive distraction at a time when the luxury world needs to focus on its recovery. At the same time, reneging on such a large acquisition could also blemish his reputation as luxury’s top dealmaker.

 

The case is Tiffany & Co. v. LVMH Moet-Hennessy-Louis Vuitton SE, 2020-0768, Delaware Chancery Court (Dover).

 

 

 

https://www.bloomberg.com/news/articles/2020-09-21/tiffany-s-suit-over-cancelled-lvmh-buyout-put-on-fast-track?srnd=premium

 

 

 

[Cigarbutt]

Summary of the last Court appearance:

-a compromise is reached for a date for the fast-track trial: after the Nov. 24 drop-dead date and before the far-into-the-future suggestion by the buyer who seems to consider time as an option with value.

-LVMH will argue that Covid was a surprise and that Tiffany's could have done better, under the circumstances. There is room for competing arguments even if LVMH's position appears weaker.

-The Judge suggested: "productive discussions to avoid the need for litigation" which seems like the best settlement outcome, under the circumstances.

 

For those who want to go deeper, here are two links:

https://www.firmex.com/resources/blog/breaking-promises-pandemics-material-adverse-events-impacting-deals/

https://poseidon01.ssrn.com/delivery.php?ID=284123064090005013104082113096096065040086057015091007085093116078112070011007088069106114044017059048002099030126114101021084060078047087052017068007093124116053022002105025031080068126087003118097071012115064019101123097108089094070065065087028&EXT=pdf

The first link points to relevant legal precedents. The second link is an updated and augmented version of what writser included in a previous reply.

So, there are four relevant variables:

-Judicial reticence and burden of proof go against LVMH.

-Precedential tea leaves opened the door to LVMH and durational significance offers an asymmetric bet for LVMH.

 

i did not think that LVMH would risk or test duration significance and would go ahead with the pre-covid negotiated deal. But they are so, assuming that they have not become convinced that Tiffany's isn't an attractive target, they likely want to get the prize for a lower prize. By extending the process, LVMH may have more to win than to lose and they may signify that somehow to Tiffany's. If, during the legal wrangle, business conditions improve for the luxury segment, LVMH may simply revert to pre-negotiated terms and close the deal. If business conditions deteriorate, their legal case becomes stronger for an even lower price or to walk away.

 

The timeline could be short but the spread is fairly thin for the risk involved. And one has to remember (and account for) that business conditions may deteriorate in the interim. At the very least, this is a very interesting case in terms of high-level corporate strategy.

[fareastwarriors]

French presidential palace requested LVMH letter - sources

 

https://www.reuters.com/article/us-tiffany-m-a-lvmh-france/french-presidential-palace-requested-lvmh-letter-sources-idUSKCN26D1SB

[given2invest]

I discussed TIF here:

 

[fareastwarriors]

LVMH and Tiffany Dismiss Judge’s Suggestion of Talks for Now

 

 

Neither side plans return to the table, people familiar say

Judge had urged companies to find a solution on takeover deal

 

https://www.bloomberg.com/news/articles/2020-09-24/lvmh-and-tiffany-dismiss-judge-s-suggestion-of-talks-for-now?srnd=premium

[John Hjorth]

To me,

 

It's more important to read the public Press Releases [and filings] of both companies right now [, to get a sense of what's up and down of this situation].

 

- - - o 0 o - - -

 

I guess I must be considered suicidal posting something like this here on CoBF. ::)  [<- That must be the first time for many years, that I use one of the standard favicons available here on CoBF - I have developed over time my own! - Lazy?]

[Cigarbutt]

I discussed TIF here:

Interesting perspective. Thanks.

The major uncomfortable issue with your odds assessment is that it implies the assumption that Mr. Arnault is an amateur with no vision. :)

People who are close to him (and those who have been hurt by him) say that he 'sees' things that nobody else 'sees'.

[Spekulatius]

TIF is now actually suing LVMH :

 

Tiffany & Co. Press Release [september 9th 2020] : Tiffany Files Lawsuit Against LVMH To Enforce Merger Agreement. [Link].

 

Talk to me about a deal going down the drain! [some lawyers in Paris and New York now likely sitting rubbing their hands : "Fees, fees, fees!!"

 

Of course they are suing. This deal is done for, but TIF probably will get a little bit of cash out of it to settle. The undisturbed, pre COVID price of TIF is ~$85/ share if I see this correctly.

 

 

Hi, why do you think this deal is done for?

 

Because the positions seem hardened and I don’t think Arnault is someone who flip flops.

 

My assessment that the deal doesn’t happen may well be wrong, based on the input here. The letter from the french government is a joke anyways, it does not even sound like a binding order,  more like a recommendation and of course it was solicited from Arnault.

 

I do think Arnault is stalling here and either waits for Situation to improve or just get a few bucks off and consummate  the merger and call it a day. Or perhaps he has an ace in its sleeve that we haven’t seen yet.

[given2invest]

TIF is now actually suing LVMH :

 

Tiffany & Co. Press Release [september 9th 2020] : Tiffany Files Lawsuit Against LVMH To Enforce Merger Agreement. [Link].

 

Talk to me about a deal going down the drain! [some lawyers in Paris and New York now likely sitting rubbing their hands : "Fees, fees, fees!!"

 

Of course they are suing. This deal is done for, but TIF probably will get a little bit of cash out of it to settle. The undisturbed, pre COVID price of TIF is ~$85/ share if I see this correctly.

 

 

Hi, why do you think this deal is done for?

 

Because the positions seem hardened and I don’t think Arnault is someone who flip flops.

 

My assessment that the deal doesn’t happen may well be wrong, based on the input here. The letter from the french government is a joke anyways, it does not even sound like a binding order,  more like a recommendation and of course it was solicited from Arnault.

 

I do think Arnault is stalling here and either waits for Situation to improve or just get a few bucks off and consummate  the merger and call it a day. Or perhaps he has an ace in its sleeve that we haven’t seen yet.

 

His ace up his sleeve was the fake letter and it failed.  He has nothing else.  This will either close on terms after trial or TIF will cut a few bucks and it will close.

[John Hjorth]

His ace up his sleeve was the fake letter and it failed.  He has nothing else.  This will either close on terms after trial or TIF will cut a few bucks and it will close.

 

given2invest,

 

I just have to say, it's beyond me, that you've put a large part of your capital on the line on this bet [[as far as I understand your bet, from the video linked to by you] like 20% long TIF]].

 

As always, some fare well, some don't. You may end up being right, though, personally, I simply can't in any way process the odds here, - too much "noise" etc.

[given2invest]

His ace up his sleeve was the fake letter and it failed.  He has nothing else.  This will either close on terms after trial or TIF will cut a few bucks and it will close.

 

given2invest,

 

I just have to say, it's beyond me, that you've put a large part of your capital on the line on this bet [[as far as I understand your bet, from the video linked to by you] like 20% long TIF]].

 

As always, some fare well, some don't. You may end up being right, though, personally, I simply can't in any way process the odds here, - too much "noise" etc.

 

Hi John

 

I've been doing this for literally decades so I think I kind of know what I'm doing.  I actually think 20% is quite conservative here.  The opportunity is precisely your view, that there is noise, that it might involve government risk, etc.  I see none of it anymore.

 

Regards

Matt

[Spekulatius]

His ace up his sleeve was the fake letter and it failed.  He has nothing else.  This will either close on terms after trial or TIF will cut a few bucks and it will close.

 

given2invest,

 

I just have to say, it's beyond me, that you've put a large part of your capital on the line on this bet [[as far as I understand your bet, from the video linked to by you] like 20% long TIF]].

 

As always, some fare well, some don't. You may end up being right, though, personally, I simply can't in any way process the odds here, - too much "noise" etc.

 

Hi John

 

I've been doing this for literally decades so I think I kind of know what I'm doing.  I actually think 20% is quite conservative here.  The opportunity is precisely your view, that there is noise, that it might involve government risk, etc.  I see none of it anymore.

 

Regards

Matt

 

Downside, if deal falls apart :$80 (worst case) - $100 (bull case), let call it blended $90, so $25 downside

Upside, if deal executes: $125 (worst case, $10 discount). $135 (bull case, no discount), so $15 upside.

 

Expected outcome =x*15-(1-x)*25>0 (x= probability of deal going though )

 

Looks like the breakeven point is when you see a 62.5% chance of the deal going through. Of course the haircuts are mine and there are possible scenarios out of the $ range above. Seems reasonable, but I would better odds.

 

(Edited math)

[given2invest]

His ace up his sleeve was the fake letter and it failed.  He has nothing else.  This will either close on terms after trial or TIF will cut a few bucks and it will close.

 

given2invest,

 

I just have to say, it's beyond me, that you've put a large part of your capital on the line on this bet [[as far as I understand your bet, from the video linked to by you] like 20% long TIF]].

 

As always, some fare well, some don't. You may end up being right, though, personally, I simply can't in any way process the odds here, - too much "noise" etc.

 

Hi John

 

I've been doing this for literally decades so I think I kind of know what I'm doing.  I actually think 20% is quite conservative here.  The opportunity is precisely your view, that there is noise, that it might involve government risk, etc.  I see none of it anymore.

 

Regards

Matt

 

Downside, if deal falls apart :$80 (worst case) - $100 (bull case), let call it blended $90, so $25 downside

Upside, if deal executes: $125 (worst case, $10 discount). $135 (bull case, no discount), so $15 upside.

 

Expected outcome =x*15-(1-x)*25>0 (x= probability of deal going though )

 

Looks like the breakeven point is when you see a 62.5% chance of the deal going through. Of course the haircuts are mine and there are possible scenarios out of the $ range above. Seems reasonable, but I would better odds.

 

(Edited math)

 

I'm at 95% the deal goes through.  Can watch my video above to see why.  I do not think the 125 and 135 outcomes are equal weight or even close to equal weight.  My EV of the 95% outcome is north of $132

[John Hjorth]

Thank you to Matt & Spekulatius for elaborating here,

 

I'm not in any way sure that I get it [, which is actually a proof [*QED*] of that I don't get the whole thing at all! [ ; - D ]]

[Spekulatius]

 

I'm at 95% the deal goes through.  Can watch my video above to see why.  I do not think the 125 and 135 outcomes are equal weight or even close to equal weight.  My EV of the 95% outcome is north of $132

 

I wish it had your conviction on binary bets like TIF and BMYRT. BMYRT is interesting when looking at baseline probabilities, but when I think that a hourly paid tech could “save” BMY more than $6B by “forgetting” a moldy 6 month old sandwich or a dead mouse when the FDA inspect the area, I think baseline approval rates may not quite apply here.

[given2invest]

 

I'm at 95% the deal goes through.  Can watch my video above to see why.  I do not think the 125 and 135 outcomes are equal weight or even close to equal weight.  My EV of the 95% outcome is north of $132

 

I wish it had your conviction on binary bets like TIF and BMYRT. BMYRT is interesting when looking at baseline probabilities, but when I think that a hourly paid tech could “save” BMY more than $6B by “forgetting” a moldy 6 month old sandwich or a dead mouse when the FDA inspect the area, I think baseline approval rates may not quite apply here.

 

Yes, note I haven't said BMYRT is 95%.  And I haven't even posted that on this website.  This is about TIF.  But happy to discuss BMYRT and the hourly paid tech who is going to commit financial fraud for someone senior who asked him or her to leave a moldy sandwich or a dead mouse around...where they would both go to jail.

 

TIF is not a binary bet like BMYRT.  It's not "0 or 1"  There are outcomes outside of that and none of them are a 0!

[clutch]

As the above poster suggested, I feel like this is one of the rare opportunities where even if the positive outcome doesn't pan out, you are not stuck with a pile of garbage in your hands. TIF is a great business with a well-established moat (their brand value). I'm going to pull the trigger...