June 09, 2020 | Consumer Discretionary | North America | Ended

Tiffany / LVMH: Reprice and ‘Out’ Viability, Pandemic Impact

One of the most closely watched pending M&A transactions is LVMH’s purchase of Tiffany, a crowded risk arbitrage situation where the outcome remains in question. Uncertainty has swirled over transaction consummation and volatility in Tiffany shares increased on news that LVMH’s board recently met to discuss ways to get a price cut. Investors’ concerns surround merger agreement language and Tiffany’s credit facility debt covenants. In this report, we look at Tiffany leverage and separately assess the strength of the merger agreement to identify where LVMH could argue to reprice or threaten to walk, such as by invoking a material adverse effect, citing failure to achieve a closing condition, accusing Tiffany of breaching a covenant, repudiating the agreement, and mutually agreeing to reprice or terminate. As a direct result of COVID-19, acquirers have attempted to use these methods to renegotiate or break their deals, and we study 20 M&A transactions that have recently failed or wobbled due to the pandemic. We also discuss considerations behind Tiffany remedies, LVMH liability protections and trading considerations, such as the appropriate Tiffany break price and a fair implied probability of completion.

Contents 1. Uncertainty from COVID-19 and Acquirers’ Termination Options 2. Invoking a Material Adverse Effect: Abilities and Consequences 3. “Slow Walking” Antitrust or Using Other Conditions to Terminate 4. Citing Tiffany Breached a Covenant: With or Without Proof 5. Repudiating the Merger Agreement and Testing ‘Willful Breach’ in Courts 6. Avoiding Litigation and Mutually Agreeing to Terminate or Reprice 7. Tiffany Remedies: Specific Performance, Termination Fees, Damages 8. LVMH Protections: Liability Limitations 9. Tiffany Break Price Analysis 10. Feasible LVMH Walk Scenarios, Trading Considerations Appendix A. COVID-19 Update: Lapsed and Struggling Deals to Date (48 pages)

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