Cross-Border Deals Subject to Political Shifts
Back in November 2019, LVMH, the giant French luxury products retailer, announced its interest in acquiring U.S. based Tiffany. The merger, viewed as bringing synergies to both parties, never took place as COVID-19 pandemic changed the original plans.
However the economics of it is not all that matters in cross-border deals. The political landscape changed too, and at such big deals, the political influence may be decisive in a deal materializing or no.
LVMH Walking Away from the Deal
To the surprise of many, this September, LVMH announced it is planning to walk away from the merger. It cited U.S. tariffs on French goods as the reason why the $16 billion deal will not take place.
Once again, politics stands in the way of a cross-border deal. However the internal situation in the United States has helped with the decision to walk away too.
The widespread civil unrest in the United States and the COVID-19 pandemic further put pressure on the LVMH to find a way to walk from the deal. Viewed as a way for the French company to strengthen its luxury jewelry portfolio, but also as a way for the U.S. company to find resources to fund its long-term growth, the deal appeared to be a win-win situation for both parties.
However, politics stood in the way and now LVMH has asked the French government to help them pull out of the deal. Effectively, the game moves at the next level – this time political.
The problem with mergers and acquisitions is that backing away from a deal is a costly process. Tiffany is unlikely to want to give up on the merger, and it is already preparing a legal battle. In the meantime, it was downgraded to BBB by Fitch and opened a legal case against the French giant.
It is not clear at this point if the French company will seek to negotiate a better price or simply wants to pull off the deal. However if it sought the help of the French government, the chances are that it is looking at exiting the deal due to the pandemic evolution.
As for the U.S. tariffs on French goods, there are less than two months until the U.S. elections. Should Trump win the White House again, tariffs are back on the table. Until then, the focus sits with the election campaign, and any surprise may shift the odds of the merger taking place anytime in the future.