Breakingviews - Arnault’s Tiffany tantrum was not worth the fuss

Chairman and CEO of LVMH Bernard Arnault attends the global tech conference Viva Technology at the Elysee Palace in Paris, France, February 21, 2017.

MILAN (Reuters Breakingviews) - What was all that fuss about? Bernard Arnault’s sudden reconciliation with his less-sparkly target Tiffany is puzzling. Overcome with buyer’s remorse over the $16.2 billion deal before the pandemic, the LVMH boss trashed the U.S. jeweller’s management, went to legal war in Delaware and even appeared to enlist the French government to help him wriggle off his own hook. The tiny discount the two sides agreed to on Thursday cannot come remotely close to justifying the hit that Arnault’s spoiled-brat tactics rendered to LVMH’s reputation.

Weary of a protracted court battle, Tiffany, led by Alessandro Bogliolo, made the first move to settle, says a source familiar with the situation. Under the new deal terms, LVMH will pay $131.5 per share in cash to acquire Tiffany instead of the $135 per share agreed last year. That amounts to a discount of about $430 million.

This already looks small. But the actual savings are arguably tinier. The deal, initially expected to close in the summer, is now likely to be completed in January. Such a delay, partly due to LVMH’s foot-dragging, meant Bogliolo was able to continue to pay investors dividends of some $70 million a quarter. The payouts, while the virus crippled Tiffany’s sales, only exacerbated Arnault’s ire.

Had the transaction closed by the summer as originally envisioned, LVMH would have been able to stop dividend payments worth perhaps $140 million. That theoretically lowers the effective savings to about $290 million. But this does not include the sizable legal fees LVMH will have to pay to Skadden, its fancy Manhattan law firm, as well as those incurred by Tiffany in its defence. These could add up to tens of millions of dollars.

LVMH’s willingness to agree on a meagre discount shows that it never really fell completely out of love with the U.S. jeweller, but rather with the way its management handled the epidemic. In that sense, for Arnault, getting to lower the price was probably a matter of principle. But the heavy-handed tactics LVMH employed may have consequences beyond Tiffany.

An exhibited willingness to rip up contracts and renege on promises should give pause to potential future targets – like Moncler, Armani or Prada – over getting into bed with Arnault. For LVMH, the price tag of future acquisitions has become more luxurious still.


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