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Discussion of the Problem
The story of Tiffany & Cos negotiation and takeover began back in October 2019. The companies officially signed the takeover agreement on November 24, which was supposed to be completed within ten months. However, they did not meet the deadline because the negotiations were complex and exhausting (LVMH makes good on vow, countersues, 2020). The reason is that negotiations were initially unproductive due to the interference of the governments of France and the United States. Moreover, after the parties had agreed on a price, both companies decided to change it, but they did not see the agreements as a means of reaching consensus. Thus, this led to a missing understanding and the filing of litigation.
It was difficult for the companies to find shared solutions, and the compromise did not happen soon. After a few months, they agreed on 16.2 billion dollars, which was the largest transaction in the luxury market. However, among the doubtful aspects of the negotiations was the ambiguous position of the LVMH directors. They did not immediately assess all the risks and, after the coronavirus outbreak, reflected on the validity of their decision, convening a special meeting. The concern tried to cite several reasons to invalidate the agreement in its current form, especially driven by the widening trade conflict with the United States. The French Foreign Ministry even asked LVMH to postpone the acquisition of Tiffany because of U.S. threats to impose additional taxes on European goods. Bernard Arnault feared that his company would overpay for Tiffany, whose numbers plummeted after the pandemic LVMH is vowing, filing a countersuit, 2020). The company should have considered the opponent opinion, but it did not, so negotiations stalled, and LVMH decided to reconsider buying the brand completely.
The jewelry company responded to such statements with a lawsuit, demanding that the original agreements be fulfilled on time. Tiffany & Co. felt that LVMH was seizing every opportunity to delay and evade its obligations, including complaints and pandemic protests. LVMH agreed not to treat these points as a valid reason to challenge the deal in the original arrangements. Thus, a rude violation of the original deal and negotiation process took the company to court. Nevertheless, despite such difficulties and mutual accusations, when they returned to using the right tactics and began to hear each other, companies managed to reach a consensus without litigation, and in 2021 an agreement was reached.
The French concern agreed to the condition of reducing the original amount by about $425 million at $131.5 per share (the parties had previously agreed on $135). Other key terms and clauses of the contract remained consistent. In addition, the companies finally established the necessary level of trust and announced their willingness to settle the upcoming lawsuits (LVMH makes good on vow, counterterms, 2020). Thus, the deal cost $15.8 billion, although originally estimated at $16.2 billion, and was the largest in the history of mergers and acquisitions in the luxury segment.
Bernard Arnaults son was appointed as the head of the acquired company. Besides Alexandre, Louis Vuitton managers will join Tiffanys new management team after the purchase of LVMH. As analysts expect, Tiffany committed to attracting younger buyers and Asian clients after the acquisition, so there will be radical reshuffles within the company. LVMH intends to completely overhaul Tiffanys operations, from optimizing its stores to refreshing the brands strategy in online sales, gradually repositioning the brand. Thus, LVMH chose the tactics of targeting new people to create interest in the renewed company. The French giants purchase of Tiffany should strengthen its position in the U.S. However, the U.S. jewelry brand will probably require more investment to revitalize its business.
Parties to the Negotiation
One of the parties to the agreement was LVMH. This is a French corporation, a well-known manufacturer of luxury goods under the brands Louis Vuitton, Givenchy, Guerlain, Chaumet, Moet & Chandon, Hennessy. The business is owned by Bernard Arnault, the President of the Group, and his family (47.4%), institutional investors (44.2%), and individuals (5.1%) (The timeline behind luxurys biggest deal to date, 2021). From 1988 to 2000, brands such as Givenchy, Kenzo, Guerlain, Celine, Marc Jacobs, Sephora, and Tag Heuer became part of LVMH. Later they were joined by Fendi, Hublot, and Bulgari.
Today the Arnault conglomerate has 75 brands operating in different segments, from elite alcohol, clothing and leather goods, perfumes, cosmetics, and precious watches to luxury hotels and tourism. The reason is that significant corporations are easier to win new markets and audiences. Now LVMH will expand Tiffanys offerings to modern people (The timeline behind luxurys biggest deal to date, 2021). The audience of the legendary American label will be joined by the HENRY (high earning not rich yet) segment, customers with high profits but not yet rich. The French conglomerate will be able to expand its range of leather goods and home decor thanks to the expertise that Tiffany & Co. has in these two segments.
The other side was the American brand Tiffany is many times older than LVMH. In the middle of the 19th century Tiffany became the sole owner of the corporation and shortened its name to Tiffany & Co. By that time, it was already the leader in the American silverware market and later gained international recognition. In 1886 Tiffany launched a diamond ring that became an iconic accessory for brides all over the world (The timeline behind luxurys biggest deal to date, 2021). The jewelry itself and even the brands packing box, made in the patented color blue shade of alder egg later became a symbol of elegance and desirability.
Today, the organization employs 14,000 people, including 5,000 jewelers. Its retail network has three hundred stores worldwide, and annual revenues reach $4.4 billion, selling jewelry with a wide range of prices, from silver earrings at $165 to a diamond necklace for $165,000. However, lately, the business of Tiffany has almost stopped growing (The timeline behind luxurys biggest deal to date, 2021). Meanwhile, Tiffanys public company was under pressure from the need to secure decent short-term results. It was this factor that was the main one in the decision to sell. While for LVMH, the central role was a desire to further expand its global dominance in the luxury industry.
Tactics Used and their Results
Considering that the companies negotiations lasted several rounds, different techniques were applied, leading to various results. Initially, the corporations set common ground and probe causes, which allowed an agreement to buy Tiffany & Co. for $16.2 billion or $135 per share. In other words, given that the agreement was signed, the first negotiations were a success. That tactic was good because businesses managed to find common ground and agree on problematic issues (Rojot, 2016). However, due to the impact of outside circumstances, the results of the negotiations were at risk of failure. I would have immediately advised the parties to start the second round of negotiations, but they did so later. It should be remarked that the factors were initially unknown to either of the companies; accordingly, new obstacles arose that required the continuation of the agreements. As a result of the influence of the pandemic and political interference, the interest of the parties changed. Therefore, I think that the parties should have investigated the impact of the pandemic using active discussion of arguments and clarifying meanings. That tactic will be good because it would allow them to explore problems and find solutions to them, given the situation in the world.
Instead, companies have chosen the wrong tactics, LVMH tried to drag out the purchase process, while Tiffany & Co sued for default. Accordingly, the process dragged on and lasted more than a year, again applying new negotiations to settle the disputes. Through the technique of active hearing and clarification of meaning, the companies representatives were able to discuss the issues and negotiate favorable terms for both representatives. After discussing pressing issues and positions, the delegates established trust and voted for a compromise price of $15.8 billion. Thus, there was a renegotiation of the agreement to use new negotiation methods. The main role belongs to the BATNA technique because the parties used it to reach an alternative cost (Rojot, 2016). Accordingly, this tactic was a good one, as it let the groups compromise and, without litigation, set a price of $ 131.5 per share for Tiffany compared to $ 135. I believe the parties could also use the ability to think clearly and quickly under pressure and uncertainty. They should have facilitated the prediction of outcomes and consequences.
Challenges and Improvements
The companies had challenges with the negotiation process and the tactics used. In particular, they do not facilitate predicting expected outcomes and consequences. These tactics could have been a great solution because of the pandemic and other external factors, but the organizations neglected it, which caused difficulties. I would also recommend that another tactic of planning a different solution be effectively implied in such a case. However, the companies did not do this because they stood their ground and were unwilling to listen to opposing views. Lack of trust can also be considered the main obstacle that caused the lawsuit. The most significant mistake was LVMHs premature, ill-conceived, and public announcement of its unilateral termination (Rogot, 2016). It could have been avoided if confidence-building tactics had been operated from the beginning. This would have helped the parties establish a willingness to listen to their partner and look for other ways that satisfied both companies.
Moreover, Bernard Arnault focused on his interests and tried to execute the agreement at a lower price, disregarding the original demands. It resulted in him getting his way and entering into a new agreement, but he suffered a loss in doing so. As a result, he paid only 2.6 percent less than he had planned last year. This discount saved LVMH $440 million, less than 1% of the French conglomerates revenue (The timeline behind luxurys biggest deal to date, 2021). This could have been withdrawn if the French concern had closed the deal more quickly and obtained control over Tiffany. They should have used the tactic of negotiating in parallel instead of focusing on personal interests.
The complex negotiation process shows the direct consequences of not using effective tactics that resulted in a delayed deal and loss of capital. Companies should have established credibility, validated the facts, and clearly stated the terms of the agreement from the beginning. The ability to listen to the opponent and communicate for mutual benefit should be valued more highly, and then any negotiation will be productive.
References
LVMH makes good on vow, countersues Tiffany & Co. Over $16.2 billion deal. (2020). The Fashion Law. Web.
Rojot, J. (2016). Negotiation: From theory to practice. Springer.
Tiffany & Co. v. LVMH: The timeline behind luxurys biggest deal to date. (2021). The Fashion Law. Web.
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