PARIS/NEW YORK • Louis Vuitton owner LVMH said it would walk away from its planned US$16 billion (S$22 billion) takeover of United States jeweller Tiffany & Co., in the most high-profile example of a deal to face collapse amid the pandemic.

The stage is set for an acrimonious legal dispute as Tiffany said it was filing a lawsuit against the French luxury goods giant to force it to complete the deal as agreed last year. It accused the group of deliberately stalling completion of the takeover.

The deal was struck before the pandemic, which has hit the sector hard and raised questions about whether LVMH was overpaying.

The luxury industry is facing an unprecedented sales slump after a decade of stellar growth, with revenues expected to fall by as much as 35 per cent this year.

It will take until 2022-23 for revenues to return to 2019 levels, according to consultancy Bain & Co.

LVMH said in a statement that its board had received a letter from the French foreign ministry asking it to delay the acquisition of Tiffany to beyond Jan 6 next year, given the threat of additional US tariffs against French products.

It added that Tiffany had also asked it to postpone the closing of the deal to Dec 31 from an already extended deadline of Nov 24.

The company said its board had decided to stick to the terms of the original merger agreement, which stated that the deal must be completed by Nov 24.

"As it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany."

Tiffany said it was suing LVMH in Delaware - where the US jeweller is registered - and seeking a court order requiring the group to abide by its contractual obligation under the deal to complete the transaction on the agreed terms. It said LVMH was in breach of its obligations relating to obtaining antitrust clearance.

It also refuted LVMH's suggestion "that it can avoid completing the acquisition by claiming Tiffany has undergone a material adverse effect or breached its obligations under the merger agreement, or that the transaction is in some way inconsistent with its patriotic duties as a French corporation".

Tiffany shares were down about 9 per cent in pre-market trading in the US and LVMH was down 1.3 per cent in Paris.

The agreement had looked in doubt since it emerged in June that LVMH boss Bernard Arnault was exploring ways to reopen price negotiations with Tiffany due to the pandemic, according to sources with knowledge of the matter. Those sources said later that the group had decided against demanding a lower price, and LVMH has repeatedly said it was committed to the deal.

But an initial Aug 24 deadline was pushed back by three months as the deal had not yet been cleared by the European Commission and other antitrust authorities.

When it struck the deal, LVMH was betting it could restore the lustre of Tiffany by investing in spruced-up stores and new collections. But the US jeweller's worldwide sales fell 29 per cent to US$747.1 million in the three months to end-July, even though it flagged a recovery last month.

The turmoil in the luxury market since the coronavirus spread had prompted speculation that LVMH would seek a lower price.

"It's a great way out for LVMH," said Lombard Forte Securities trader Keith Temperton. "It's not surprising, their efforts to wriggle out of it."

REUTERS, BLOOMBERG