Share prices of US luxury jewelry and specialty retailer Tiffany & Co dipped on Tuesday following news that LVMH may not be pushing through with its previously planned $16 billion acquisition. A report citing sources with knowledge of the matter claimed that LVMH is mulling over possibly scrapping the deal given the current economic situation.
The same sources claimed that LVMH board members had met on Tuesday to discuss the planned acquisition of Tiffany & Co. Some members apparently expressed concerns about making such a huge investment given the still lingering economic backlash caused by the coronavirus pandemic and the disruptions to the US economy caused by the recent riots. Other directors also expressed worries over Tiffany & Co's ability to cover its debts following the transaction.
On Tuesday, Tiffany & Co's share prices plunged by more than 8.9 percent to $117.03 per share. The dip was the steepest intraday drop experienced by the stock since 2015. LVMH's stock prices on Paris remained relatively unchanged following the news. The French company previously agreed to purchase Tiffany & Co for $135 per share during initial negotiations.
Analysts at Sanford C. Bernstein stated that it was normal for LVMH to express concern over the transactions. Given the size of the deal, it was normal that the company would call for an internal discussion on how it would be moving forward given the recent turn of events in the US. LVMH does have a lot to gain if it will push through with the acquisition as it would significantly bolster its position in the luxury jewelry market.
It is likely possible that LVMH will attempt to renegotiate better terms for the acquisition. Since the two companies had come to an agreement back in November, Tiffany & Co's stock prices have gone down by more than 12 percent. The deal was expected to close sometime in the second and third quarters of this year.
Tiffany & Co's business in the US was significantly affected by the spread of the disease earlier in the year. The company mentioned on its website earlier in the week that its stores will remain closed until further notice. All of the companies stores in the US have remained closed since mid-March. The recent riots in major US cities in protest of the killing of George Floyd by a police officer have derailed Tiffany & Co's plans of immediately reopening.
The economic downturn caused by the coronavirus pandemic has managed to derail a number of massive deals this year. Sycamore Partners recently backed out of purchasing a majority stake in L Brands' Victoria's Secret business. If LVMH does back out of the acquisition, it will likely become the largest agreement collapse related to the pandemic.
