French luxury giant's Tiffany tie-up in tatters after tariff tiff

A $16.2-billion (€14-billion) buyout by French luxury giant Moet Hennessy Louis Vuitton (LVMH) of US jeweler Tiffany & Co. fell through this week after the French government expressed fears over US tariffs on French goods. 

After months of talks between the two sides, LVMH finally announced plans last November to acquire Tiffany, an American icon founded in 1837. LVMH, which had coveted the US jeweler for years, is the world’s largest luxury goods conglomerate and many saw the deal as a lifeline for its US counterpart. 

But LVMH’s withdrawal had been coming for some time, after it sought to renegotiate the takeover agreement in March at the start of the lockdowns and a big fall in Tiffany’s sales. In May its senior management reportedly began cutting off even informal discussions with senior Tiffany personnel.

On Wednesday Paris-based LVMH said in a statement it could not complete the deal with Tiffany “as it stands,” citing a request from the French government on August 31 to delay the deal beyond January 6 because of the threat of US tariffs on French goods. 

The US has been threatening tariffs on luxury French products in retaliation for taxes on technology companies that have hit American firms like Amazon, Facebook and Google. 

Tiffany & Co.'s store in New York City is currently being renovated

Tiffany & Co.’s flagship store in New York City is currently being renovated

Litigation could prove costly

Tiffany immediately sued to enforce the deal, asking a Delaware court to force LVMH to complete the merger or award Tiffany damages. The initial agreement allows Tiffany to pay a termination fee of $575 million to walk away from the deal, but LVMH doesn’t have the same option. 

The New York-based firm claims that LVMH’s argument for halting the buyout has no foundation in French law and that LVMH hadn’t attempted to seek the necessary antitrust approval. LVMH said the necessary approvals were expected in October. 

Tiffany said LVMH had also breached its merger obligations by excluding the retailer from its discussions about the transaction with the French government. In a securities filing, Tiffany said that although LVMH had informed the jeweler it had received a letter from the French government, it had not seen an original draft of that letter.

On Thursday, the Paris-based conglomerate — whose holdings include Christian Dior, Louis Vuitton, Moet & Chandon, Bulgari and Sephora — issued a statement threatening legal action of its own. Among other things, LVMH criticized Tiffany for issuing dividends even as it was losing money.

A hard-fought deal

In what would have been — and could still be — the sector’s biggest-ever buyout deal, LVMH agreed to raise its offer several times, finally accepting $135 a share, which translated into an equity value of $16.2 billion.

It was an all-cash figure that was 22% higher than the New York-based company’s share price in November 2019. The deal was expected to be completed by this June, with a merger deadline of August.

The acquisition would consolidate the French company’s position as a big player in the watch and jewelry sectors. It would reportedly double the size and profitability of its portfolio in that category, which includes brands like Bulgari, Chaumet, Hublot and Tag Heuer, and accounts for roughly 9% of LVMH sales. 

Tiffany faces uncertain future

Tiffany had been trying to transform its brand, but is facing uncomfortable prospects beyond a costly legal battle with LVMH. In the six months ending on July 31, Tiffany had revenue of $1.3 billion compared with $2.05 billion in the same period of 2019. Tiffany operates 321 stores worldwide and reported $4.4 billion in revenue last year. 

LVMH said second quarter sales fell 38% on a like-for-like basis to €7.8 billion, or $9.2 billion, after a 17% decline in the first quarter. In 2019, LVMH declared €53.7 billion in revenue, a 15% increase over the previous year. The company is active in 70 countries with nearly 5,000 stores and 163,000 employees.

In the end a deal may eventually be completed, potentially at a discounted price as its value has been eroded by wider industry troubles caused by the coronavirus pandemic. Global luxury sales are set to contract 25-45% in 2020, according to estimates by Boston Consulting Group.

In August in the US a number of major retailers filed for bankruptcy protection to try to save their businesses, including the 118-year-old department store chain JCPenney. For mergers and acquisitions the new world order has changed the rules, with a number of other deals called off or in doubt. The battle brewing between two of the biggest names in global luxury is one the biggest examples of this fracturing of deals agreed before the pandemic devastated retailers.



Trump under fire: Canadian PM Trudeau fires warning shot over US tariff threat

The meeting is supposed to be about marking the new continental trade deal and is going to take place with not just the US President, but also Mexico’s Andres Manuel Lopez Obrador. The Canadian prime minister made the comments Friday when asked by a reporter about his invitation to meet with his North American counterparts to commemorate the trade pact. It was a trade pact that also came into force this week.

The meeting is scheduled for the 8-9 July.

However, it appears as though Justin Trudeau is prepared to stay home from the USMCA summit.

“We’re still in discussions with the Americans about whether a trilateral summit next week makes sense,” Trudeau told a press conference near Ottawa.

“We’re obviously concerned about the proposed issue of tariffs on aluminum and steel that the Americans have floated recently.

“We’re also concerned about the health situation and the coronavirus reality that is still hitting all three of our countries.”

The US has been putting a great deal of pressure on Canada recently to put quotas on its aluminium exports.

This is in order to slow a rush in shipments.

READ MORE:Justin Trudeau under pressure to condemn Trump response to US unrest

However, the agreement to remove these levies stated the US could also reimpose them after consulting with Canada.

And, “in the event that imports of aluminium or steel products surge meaningfully beyond historic volumes of trade over a period of time.”

This could potentially lead to new retaliatory duties from Canada.

Mainly because the reintroduction of US tariffs would create a new cross-border tension between the two countries.

Earlier this week, Trudeau warned that if the Trump administration put tariffs back on Canadian aluminium it would raise input costs for American manufacturers and hurt the US economy.

“We have heard obviously the musings and proposals from the United States [that] perhaps there needs to be more tariffs on aluminium,” he told reporters Monday.

“What we simply highlight is the United States needs Canadian aluminum. They do not produce enough, nowhere near enough aluminum in the States, to be able to fill their domestic manufacturing needs.”

The pandemic is also something else that the Canadian Prime Minister will have on his mind.

As if he is to visit the US, then Justin Trudeau will need to make sure he self-isolates on the way back.

“These are obviously conversations that we’re having both with the Americans and with public health officials here in Canada,” he said.

“But I can assure you that at all times we will follow all the rules and all the advice of public health.”



EU panic: Brussels terrified that WTO delay undermines bloc in tariff battle against Trump

The World Trade Organisation has pushed back the decision by at least five months due to the impact of the coronavirus pandemic. Brussels is worried the delay harms the EU’s right to launch retaliatory tariffs against Washington over subsidies for aerospace giant Boeing. A European Commission spokesman said: “The EU is very concerned about this and we have communicated this to the WTO.

“We believe that the delay would not be justified, even in the context of COVID-19 and that it would be detrimental to the EU’s retaliatory rights under WTO rules.”

The United States has already won the right to slap tariffs on $7.5 billion of EU goods in a similar case over subsidies for European platemaker Airbus.

The decision was made by the WTO last October as part of a long running spat subsidies between Brussels and Washington.

The EU wants to reach an agreement with the US over plane subsidies to finally settle the dispute.

However, experts believe this won’t happen until the WTO awards Brussels with the right to impose tariffs.

The US tariffs focus on planes, olives, tools and whisky from Airbus-building countries Britain, France, Germany and Spain.

They also target cheese, wine and pork from across the EU.

Washington increases the tariff rates in February and is now investigating an additional list of $3.1 billion worth of tariffs on products.

The fresh list includes bakery goods, beer, gin and vodka from the four plane producing countries.

It was drawn up by the US Trade Representative and includes 26 other products.

International Trade Secretary Liz Truss has said she was disappointed by Washington’s actions, warning against the possibility of a “tit-for-tat” tariffs row.

MUST READ: Tory MP perfectly explains why EU will back down to Boris Johnson

And the trade body is now considering a parallel case involving illegal support for Boeing, which could allow the EU to impose tariffs later this year.

In a statement, the EU said: “It creates uncertainty for companies and inflicts unnecessary economic damage on both sides of the Atlantic.

“This is particularly the case are companies are now trying to overcome the economic difficulties in the aftermath of the COVID-19 crisis.”



EU panic: Brussels terrified that WTO delay undermines bloc in tariff battle against Trump

The World Trade Organisation has pushed back the decision by at least five months due to the impact of the coronavirus pandemic. Brussels is worried the delay harms the EU’s right to launch retaliatory tariffs against Washington over subsidies for aerospace giant Boeing. A European Commission spokesman said: “The EU is very concerned about this and we have communicated this to the WTO.

“We believe that the delay would not be justified, even in the context of COVID-19 and that it would be detrimental to the EU’s retaliatory rights under WTO rules.”

The United States has already won the right to slap tariffs on $7.5 billion of EU goods in a similar case over subsidies for European platemaker Airbus.

The decision was made by the WTO last October as part of a long running spat subsidies between Brussels and Washington.

The EU wants to reach an agreement with the US over plane subsidies to finally settle the dispute.

However, experts believe this won’t happen until the WTO awards Brussels with the right to impose tariffs.

The US tariffs focus on planes, olives, tools and whisky from Airbus-building countries Britain, France, Germany and Spain.

They also target cheese, wine and pork from across the EU.

Washington increases the tariff rates in February and is now investigating an additional list of $3.1 billion worth of tariffs on products.

The fresh list includes bakery goods, beer, gin and vodka from the four plane producing countries.

It was drawn up by the US Trade Representative and includes 26 other products.

International Trade Secretary Liz Truss has said she was disappointed by Washington’s actions, warning against the possibility of a “tit-for-tat” tariffs row.

MUST READ: Tory MP perfectly explains why EU will back down to Boris Johnson

And the trade body is now considering a parallel case involving illegal support for Boeing, which could allow the EU to impose tariffs later this year.

In a statement, the EU said: “It creates uncertainty for companies and inflicts unnecessary economic damage on both sides of the Atlantic.

“This is particularly the case are companies are now trying to overcome the economic difficulties in the aftermath of the COVID-19 crisis.”



Brexit warning: Frost mocks paranoid EU 'ideas' over tariff threats 'We go in good faith'

The opening salvo comes on the eve of critical post-Brexit trade talks which will determine Britain’s future trading relationship with the European Union from the beginning of next year. The next round of talks begins on Monday and will be held face to face for the first time since the coronavirus epidemic. David Frost, known as “the sherpa” on EU negotiations, said that the “intensified process” in the discussions needed to be realistic.

The comments come after the Prime Minister insisted that the UK would reject an EU offer to extend the Brexit transition period beyond the end of the year.

In bullish language, Mr Frost insisted that UK sovereignty over laws, courts, and fishing waters was “not up for discussion”.

He also stated that what he called some of the EU’s more “unrealistic positions” will have to change in order to achieve progress.

In a volley of tweets Mr Frost said: “We will go to Brussels in good faith to engage with the EU’s concerns.

“This needs to be a real negotiation and some of the EU’s unrealistic positions will have to change if we are to move forward.

“We have noted carefully what the EU has said in recent days on this subject and look forward to discussing it.

“UK sovereignty, over our laws, our courts, or our fishing waters, is of course not up for discussion.

“Equally we do not seek anything which would undermine the integrity of the EU’s single market.

“I want to be clear that the Government will not agree to ideas like the one currently circulating giving the EU a new right to retaliate with tariffs if we chose to make laws suiting our interests.

“We could not leave ourselves open to such unforeseeable economic risk.”

Mr Frost said he was looking forward to the resumption of face-to-face talks in the wake of the coronavirus outbreak.

He said: “The next round of talks with the EU begins on Monday 29 June.  This is the start of the intensified process.

“For the first time since March we will meet face to face, in Brussels. We look forward to welcoming the EU team to London the week after.

“These meetings will be smaller and focused on seeing whether we can begin to make genuine and rapid progress towards an agreement.”

The UK has a deadline of July 1 if it wants to extend the transition period beyond the end of the year.

Mr Frost’s EU counterpart said that Britain must send “clear signals” that it wants to seal a deal with the European Union on their relationship after Brexit.

Michel Barnier said Britain had so far not engaged with tentative openings floated by the EU side on state aid and fisheries in the previous negotiating rounds.

Speaking in an online seminar, Mr Barnier added: “The ball is in the UK’s court, I believe that the deal is still possible.”

He said he was “disappointed” with Britain’s refusal to negotiate on foreign policy and defence but that he was open to finding a “margin of flexibility” on thus-far conflicting EU and UK positions on fishing and the state aid fair play guarantees.

When asked how far the bloc could go towards Britain on the so-called level playing field provisions of fair competition, Mr Barnier added: “As well as with fisheries and governance, we are ready to work on landing zones, respecting the mandate of the EU.”

Tuesday was the fourth anniversary of the historic referendum which saw 17.4 million people voting to leave the EU.

Conservative MP Michael Fabricant said: “We must stick to our guns and not extend the Transition so the EU can be focussed on a new mutually beneficial trade agreement with the UK while maintaining our sovereignty as a major power out of the EU.”