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Law360 (September 29, 2020, 11:50 PM EDT ) A group of Tiffany & Co. shareholders say they lost millions after LVMH's "illegal renunciation" of the pair's crumbling $16.2 billion merger, claiming in a complaint filed Tuesday in New York federal court that they were misled into investing based on bogus assurances by the French luxury goods conglomerate that the deal would go through.
The investors in the American jewelry retailer, which include Lucien Selce, Drexel, Morgan & Co. Inc. and Fairmont Capital Ltd., are accusing LVMH Moet Hennessy Louis Vuitton SA of securities fraud and violations of the Securities Exchange Act of 1934.
LVMH's numerous statements expressing enthusiasm for the deal before it was signed, and its desire to close it quickly, caused the investors to dump millions into Tiffany, the suit says. Now, LVMH is trying everything in its power to escape its obligations under the merger agreement, including falsely claiming that the COVID-19 pandemic gives it a right to leave the deal and delaying the antitrust clearance process, the suit contends.
"Defendants have taken the pretextual position that the global economic downturn incident to the COVID-19 pandemic qualifies as a 'material adverse effect' under the merger agreement," the investors say. "No such MAE has taken place and ... defendants have no legitimate basis for arbitrarily voiding the merger agreement."
The companies unveiled the deal in November after some back and forth between them. Originally, in October, LVMH offered to buy Tiffany for $14.2 billion, and the company ultimately raised its bid to $16.2 billion, or $135 per share in cash.
Skadden Arps Slate Meagher & Flom LLP advised LVMH, with Cleary Gottlieb Steen & Hamilton LLP providing antitrust advice. Sullivan & Cromwell LLP advised Tiffany.
In June, Reuters reported that the CEO of LVMH wanted to bring Tiffany back to the table to renegotiate the deal because of difficulties facing the retail sector, including social unrest in the U.S. and continuing effects from the pandemic. Tiffany did not believe the deal warranted renegotiation, the report said.
Then LVMH said on Sept. 9 that it won't be able to go through with the acquisition, and Tiffany filed suit in Delaware alleging LVMH was unlawfully using the COVID-19 pandemic to try to avoid completing the deal.
On Sept. 10, LVMH said it intended to file a competing lawsuit in Belgium. The company wound up filing a 241-page countersuit in Delaware Chancery Court on Monday.
Tiffany pushed back at LVMH's countersuit in a statement Tuesday, saying LVMH's arguments are "baseless and misleading" and a "blatant attempt" to avoid paying the agreed-upon price.
It lambasted LVMH's claims that Tiffany suffered "devastating and lasting" harm from the COVID-19 pandemic that created a material adverse effect that fatally violated the companies' merger contract, noting that it took LVMH almost three weeks to file its countersuit.
The Chancery Court already has set a fast-track schedule for the trial on Tiffany's suit. It's scheduled to begin Jan. 5, which the court said would allow time for a ruling and appeals before international antitrust approvals begin to expire.
This does not the first major deal to face difficulties amid the pandemic. Others include Simon Property Group Inc.'s planned $3.6 billion acquisition of struggling indoor mall operator Taubman Centers Inc. and Wex Inc.'s planned $1.7 billion deal to buy two travel payment businesses.
The Tiffany investors also attack the invocation of COVID-19 in their suit Tuesday, claiming that LVMH hasn't actually pointed to a decline specific to any Tiffany business and instead have focused on an "industry-wide downturn" throughout the entire luxury goods sectors.
LVMH points to quarterly declines that include LVMH itself without showing any long-lasting declines or declines that are unique to Tiffany, the investors argue. And in fact, Tiffany provided LVMH with projections, in August, that the fourth quarter earnings of 2020 will be even greater than those in 2019, the suit alleges.
Furthermore, in an "outrageous gambit," LVMH, one of France's "most powerful and influential corporations," has been lobbying for its country's government to intervene and nix the merger, the Tiffany investors claim.
"LVMH has made clear that its real goal is to attempt to renegotiate the merger price to which the parties agreed in November 2019 and, barring renegotiation, orchestrate the collapse of the deal," the investors said.
LVMH's attempt to torpedo the deal is artificially reducing the value of Tiffany stock, the investors say, claiming violations by the company and some of its executives of the Exchange Act and anti-fraud provisions of federal securities laws and saying each count is believed to have damaged the investors by more than $10 million.
Representatives for the parties did not immediately respond to requests for comment Tuesday.
The investors are represented by Paul Batista of Paul Batista PC.
Counsel for the defendants was not immediately known Tuesday.
The case is Selce et al. v. LVMH Moet Hennessy-Louis Vuitton SE et al., case number 1:20-cv-08041, in the U.S. District Court for the Southern District of New York.
--Additional reporting by Benjamin Horney. Editing by Brian Baresch.
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