Weekly Commercial Awareness Update - September Week 3, 2020
LVMH dropped its acquisition offer for Tiffany & Co.
LVMH, aka Moet Hennessy Louis Vuitton, is a French multinational corporation selling luxury goods. If you never heard of them this might be a surprise. They own most of the luxury brands we know, including not only Louis Vuitton and Moet & Chandon, as the name already tells, but also Givenchy, Fendi, Bulgari and Dom Perignon.
LVMH was going to acquire Tiffany & Co. for $16 billion, which would have been the largest deal in the industry in history. But LVMH recently cancelled this offer claiming that the French government sent it a letter telling it to delay the deal because of the US threatening to impose tariffs on French products. But this is very dubious because none of the other companies have received such a letter and LVMH never showed Tiffany the original version of the letter. People are suspecting LVMH is just trying to get out of the deal with the help of the French government.
Infuriated Tiffany sued LVMH. LVMH, of course, is preparing to defend itself. It is trying to invoke the Material Adverse Effect (MAE) clause in the acquisition agreement. It is arguing that MAE allows where there is a significant change in the circumstances that reduce the value of Tiffany, LVMH can terminate the deal, and due to Covid-19, Tiffany’s global sales fell 29% in the quarter ending July 31.
The outcome of this case will have important implications on other M&A deals that have or might be broken apart due to the pandemic. It will decide whether the pandemic is a valid reason to invoke the MAE clause and thus allow one of the parties to just walk away from the deal.
TikTok – Oracle partnership vs Trump
Trump is hugely concerned about the Chinese government having access to US user data on TikTok. So he ordered TikTok to sell its US business to a US company or else it will ban its services in the US. Instead of selling its business, TikTok came up with a proposal for a partnership with Oracle, an American multinational computer technology company, which will make Oracle responsible for handling TikTok’s US user data. ByteDance, TikTok’s parent company, insists that it will still own the majority share in TikTok.
Trump is, unsurprisingly, not satisfied with this proposal as he wants a US company to own the majority of TikTok in the US.
ByteDance made further concessions by saying that it will list TikTok on a US stock market instead of China or HK stock markets, set TikTok up as a US-headquartered company, have an all-American board, etc. But it is to be seen whether these will make Trump happy.
US government is getting more and more involved in corporate deals, claiming that it must protect the public interests of Americans. It intervened in high profile deals between AT&T and Time Warner, and Qualcomm and Broadcom in the past. Law firms advising companies operating in the US or planning to enter into a deal with a US company would have to be aware of this growing intervention from the US government and consider how they could best protect the client’s interests.
End of oil, new energy
Due to Covid-19, oil demand dropped by more than 1/5 because the world just stopped moving due to lockdowns.
In contrast, the alternative energy industry is booming. Alternative energy stocks are up by 45% this year and many governments around the world are supporting green-energy projects. Recently, the EU allocated at least 30% of its Covid-19 recovery fund for climate measures.
According to The Economist, moving towards clean-energy system will have 3 benefits:
① Environmental: Address climate change and pollution.
② Political: Bring about political stability. Petrostates would no longer be able to rely on oil for their economy and will be forced to collect taxes from citizens to run the country. This will make the governments more representative of their citizens. Also, countries that consume oil from these countries will no longer have to get involved in political games or allocate troops in these countries to secure a continued supply of oil.
③ Economic: Today, oil prices are determined by a huge cartel called OPEC, which consists of the world’s major oil-exporting countries. They control the supply of oil to influence the price of the oil. With the rise of alternative energies, prices of those energies will not be controlled by a few actors but be determined by competition and efficiency gains, which will be fairer and more stable.
Movement towards clean energy has also several implications on law firms:
- Greater green projects will expand green bond market which helps financing those projects.
- To achieve various environmental goals, countries will enact new legislations and law firms would have to keep abreast of this.
- Development of new energy technologies, constructing them, exporting them, etc require involvement of law firms.
> They will negotiate and draft contracts between different stakeholders.
> Energy infrastructure projects are expensive and often involve joint ventures. Law firms would have to advise on and draft the terms of joint ventures.
> New energy technologies will require registering IP rights.