Putting an end to what would have been the biggest-ever deal in the luxury industry, fashion house LVMH Moet Hennessy Louis Vuitton SE (XPAR:MC, Financial) called off its $16.2 billion buyout of Tiffany & Co. (TIF, Financial) on Wednesday.
Shares of the iconic New York-based jeweler sank 10% in early trading on Wednesday following the announcement, while the French company's stock declined nearly 0.2%.
The deal, which was struck in November 2019, ran into issues after coronavirus-related lockdowns shuttered stores around the world and curbed international travel, crippling demand for luxury goods and sending Tiffany's global net sales down 29% in the second quarter. This was, however, an improvement from the 45% decline recorded in the previous quarter.
After initially contemplating renegotiating the deal in June, the two companies agreed last month to extend its closing to November. Tiffany then requested to push it back even further to Dec. 31. LVMH also said the French government asked in a letter to delay it beyond Jan. 6, 2021 due to the U.S. potentially implementing tariffs on its goods.
As a result of these developments, the Louis Vuitton owner said in a press release it would not be able to complete the acquisition of Tiffany "as it stands" before the end of the year since it will need more time to figure out any potential impacts from the tariffs.
In response, the Wall Street Journal reported that Tiffany filed a lawsuit in Delaware to enforce the agreement, arguing that the request from the French government has no basis in law.
The Covid-19 pandemic has caused several other retail-related deals to fall through. For instance, mall owner Simon Property Group Inc. (SPG, Financial) scrapped its deal to buy Taubman Centers Inc. (TSC, Financial) in June, which led to a countersuit. Private equity firm Sycamore also backed out of buying Victoria's Secret from L Brands Inc. (LB, Financial) in May.
With a $13.58 billion market cap, shares of Tiffany were down 8.5% at $111.48 on Wednesday. GuruFocus estimates the stock has fallen nearly 20% year to date. Similarly, shares of LVMH were down 0.08% at 404.05 euros ($477.21) in Paris. The stock has tumbled an estimated 4% so far this year.
Of the gurus invested in the stock, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest stake with 1.1% of outstanding shares. Other guru shareholders who were counting on the deal's completion include Pioneer Investments (Trades, Portfolio), John Paulson (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Michael Price (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Charles Brandes (Trades, Portfolio), Prem Watsa (Trades, Portfolio), George Soros (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Lee Ainslie (Trades, Portfolio) and Ron Baron (Trades, Portfolio).
Disclosure: I am long Tiffany.
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