By Sierra Jackson

Law360 (September 10, 2020, 6:41 PM EDT) -- French luxury goods company LVMH said Thursday that it would file a countersuit against former acquisition target Tiffany & Co. in Belgian court for allegedly mismanaging the business during the coronavirus pandemic by distributing dividends to shareholders even as it faced losses.

The suit, which LVMH Moet Hennessy Louis Vuitton SA said it would file in the coming days, comes the day after Tiffany accused the French conglomerate of using the pandemic to avoid completing the $16.2 billion deal and revealed plans to sue LVMH in Delaware Chancery Court.

LVMH said in a statement that it was "surprised" by the American jewelry retailer's "defamatory" and "unfounded" suit, which the French enterprise claimed Tiffany had been preparing for a while and shared with shareholders in a "misleading way." LVMH added it would "defend itself vigorously" against the suit.

"The long preparation of this assignment demonstrates the dishonesty of Tiffany in its relations with LVMH," the company said. "This action is essentially based on the accusation by Tiffany that LVMH failed to take the reasonably necessary steps to obtain the various regulatory authorities' approvals in a timely way. This accusation has no substance."

Representatives for Tiffany did not immediately respond to requests for comment.

In a Wednesday statement announcing the termination of the deal, LVMH cited economic disruption caused by the pandemic and the U.S.' potential to levy high tariffs on French goods alongside the LVMH board's recommendation to delay the acquisition until after Jan. 6, 2021. That's the same date until which the U.S. is delaying its tariffs — which the Office of the U.S. Trade Representative said in July could be as high as 25% — on $1.3 billion worth of French products.

LVMH said its board also urged the company to push the merger agreement's "outside date" — which generally allows a party to walk away from a deal free of penalties if the acquisition still hadn't happened as of that date and said party wasn't to blame for the delay — of Nov. 24 to Dec. 31, effectively preventing the deal from closing. The board then decided to pull out of the deal based on the November 2019 merger agreement's stipulation for a hard Nov. 24, 2020, closing deadline for the acquisition.

The French group said in its Thursday statement that Tiffany's financial results for the first half of 2020 and estimations for the rest of the year were "very disappointing, and significantly inferior to those of comparable brands." LVMH pointed to a change in Tiffany's financial situation, which LVMH said was enough to count as a material adverse effect on the merger agreement and justifying its backing out of the deal.

For the first six months of the year ending July 31, 2020, Tiffany's worldwide net sales declined 37% year-over-year, according to its annual financial statement filed with the U.S. Securities and Exchange Commission in August. The American jeweler pointed out that its worldwide e-commerce sales for the six months ending July 31 increased 73%. Tiffany also had an operating loss of $45.7 million and net loss of $32.7 million for the six months of the year ending July 31, according to the SEC filings.

Tiffany said in a separate statement Wednesday that its planned lawsuit in Delaware aims to expedite the court proceedings and obtain an order before Nov. 24 compelling LVMH to go through with acquisition under its original terms. The lawsuit refutes that LVMH can use claims of material adverse effect or breached obligations to slip out of the deal, alleging that LVMH is responsible for shouldering all regulatory approval- and adverse financial-related risk. 

The transaction between LVMH and Tiffany has already faced several changes since it was first announced in November. LVMH had previously offered in October to buy the American company for $14.2 billion before eventually upping its bid to $16.2 billion, or $135 per share, in cash.

And in June, LVMH's CEO reportedly tried to renegotiate amid the difficulties facing the retail sector, including social unrest in the U.S. and continuing effects from the coronavirus pandemic.

Skadden Arps Slate Meagher & Flom LLP advised LVMH on the initial merger, with Cleary Gottlieb Steen & Hamilton LLP providing antitrust advice. Sullivan & Cromwell LLP advised Tiffany.

Counsel information for the parties was not immediately known.

--Additonal reporting by Benjamin Horney, Alex M. Parker, Chelsea Naso and Adrian Cruz. Editing by Alanna Weissman.

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