The $16 Billion M&A deal that turned into a walk-away legal battle
STG CORPORATE AND COMMERCIAL LAW • CLIENT INSIGHT
The LVMH–Tiffany deal: what hell-or-high-water clauses and MAE carve-outs actually mean — and how buyers and sellers should think about them before signing
By Kat Strandberg | STG Corporate and Commercial Law AB
On 25 November 2019, LVMH — the world's largest luxury goods group — signed an agreement to acquire Tiffany & Co. for USD 16.2 billion. It was LVMH's largest acquisition in its history. The deal was widely described as straightforward: a world-class acquirer applying its proven formula to an underperforming, but iconic, brand.
Then a pandemic hit and markets crashed. Tiffany's revenues fell sharply because of this as Tiffany´s to a large part had in-store sales and a large customer group was tourists. As a reaction to Tiffany´s strougles LVMH decided it no longer wanted to proceed with the deal (that is after signing but before closing).
What followed was one of the most dramatic M&A disputes of the last decade — a case study in how central clauses in any acquisition agreement actually function when a major deal starts to fall apart.
This article explains the key legal concepts at the heart of the dispute — the Material Adverse Effect clause, the hell-or-high-water obligation, force majeure, and specific performance — and draws out the practical lessons for both buyers and sellers.
"LVMH signed a contract that allocated pandemic risk to them as the buyer. Then it tried to use the pandemic as its exit."
The Story: A ten month dispute period
Nov 2019 - Agreement signed
The price was USD 135 per share and that meant a 37% premium. The merger agreement included MAE provisions, specific performance rights, and a USD 575 million reverse termination fee payable by LVMH in limited circumstances.
Mar–Jun 2020- Pandemic hits
Global luxury retail shut down. Tiffany's revenues and profits fell sharply — as did those of every luxury goods company in the world.
Sep 2020- LVMH announces termination
LVMH cited a letter from the French Foreign Ministry instructing it to delay the acquisition past 6 January 2021. The reason for such an unconventional letter was the France–US trade dispute over digital services taxes. LVMH also raised concerns about Tiffany's management of its business during the pandemic, claiming it had missmanaged the business to such an extent that it was no longer the business LVHM signed up to buy.
Aug–Sep 2020- Tiffany sues in Delaware
Tiffany filed suit in the Delaware Court of Chancery seeking specific performance — that is a court order requiring LVMH to complete the acquisition at the agreed price of USD 135 per share. LVMH counterclaimed, alleging Tiffany had mismanaged the business and that it had paid imprudent dividends during the COVID period.
Oct 2020 - Settlement
Three months before trial LVMH agrees to complete the acquisition at approximately USD 131.50 per share — a reduction of, in total, approximately USD 425 million. All litigation was cancelled and the deal closes in January 2021.
The MAE Clause: What it actually does
The Material Adverse Effect clause is one of the most negotiated and most litigated provisions in any M&A agreement. It is a buyer friendly clause as it has two main functions (i) it defines what must be true about the target company between signing and closing (as a condition to the buyer's obligation to complete), and (ii) it gives the buyer an exit right if the target deteriorates materially from this in a qualifying way.
In the LVMH–Tiffany agreement — like virtually every sophisticated cross-border M&A agreement — the MAE clause had two components: a definition of what counts as a material adverse effect, and a set of carve-outs that explicitly excluded certain categories of event from that definition even if they caused significant damage to the business.
✓ What could typically count as an MAE
• Sustained loss of key customers or revenue streams
• Material deterioration of the target's financial condition
• Regulatory action specifically targeting the target
• Loss of key intellectual property or licences
• Breach of material contracts by the target
• Fraud or misrepresentation discovered post-signing
✗ What a MAE carve-out often excludes
• General economic or financial market downturns
• Industry-wide conditions affecting the sector broadly
• Pandemics, epidemics, or public health emergencies
• Acts of God, natural disasters, force majeure events
• Changes in applicable law or regulation (general)
• Geopolitical events, trade disputes, sanctions
• Failure to meet financial projections (unless underlying cause qualifies)
• Changes in share price or credit ratings (unless underlying cause qualifies)
The carve-outs are the risk allocation of the deal. When a seller negotiates a carve-out for pandemics, general economic conditions, and industry-wide events, it is transferring those risks to the buyer. The buyer who signs that agreement is agreeing to complete even if a pandemic arrives and hurts the target's revenue.
"The carve-outs tell you what risks you agreed to carry. Read them before you sign — not after the crisis arrives."
LVMH's MAE argument had a second structural problem beyond the carve-outs: the MAE clause is directed at the target company, not the buyer. It gives the buyer an exit if the business it is acquiring has suffered a qualifying deterioration. LVMH attempted to argue that tariff threats on French luxury goods — which would affect LVMH's own business — constituted a trigger. The clause was simply not designed to operate in that direction.
The Hell-or-High-Water clause
A hell-or-high-water obligation — sometimes called a "certain funds" commitment in European deal practice — is a provision that requires a buyer to complete the transaction regardless of what happens between signing and closing, subject only to very limited exceptions. It is the contractual expression of unconditional commitment.
In the LVMH–Tiffany agreement, the specific performance clause operated alongside the financing structure to create an obligation that was close to absolute from LVMH's perspective. LVMH did not have a general walk right at a fixed break fee. The USD 575 million reverse termination fee — payable by LVMH if it failed to complete — was only available in limited circumstances, primarily financing failure. In every other scenario, Tiffany had the right to seek specific performance.
This architecture is common in high-quality strategic acquisitions. The seller is not just agreeing to a deal — it is giving the buyer operational control after signing, and foregoing other opportunities. In exchange, the seller expects genuine certainty of closing. Hell-or-high-water provisions and specific performance rights are the mechanism that provides that deal certainty.
"The reverse termination fee is not the buyer's exit door. Read the specific performance clause first."
For buyers, the lesson is stark: before signing, understand precisely what scenario would allow you to walk at the break fee price versus the scenarios in which you will be compelled to complete. In many large M&A agreements, the scenarios in which a buyer can truly walk are far narrower than they assume.
Force Majeure: Why the government letter did not work
Force majeure is a contract doctrine that excuses a party's non-performance when an extraordinary event outside that party´s control makes performance more or less impossible. LVMH's second termination argument was that the French Foreign Ministry's letter — instructing it to delay the acquisition — constituted a government order triggering force majeure protection. There were two fundamental problems with this argument.
First: force majeure requires the triggering event to be outside the party's control and not caused by that party's own actions. Subsequent reporting — credibly and widely — suggested that LVMH had itself lobbied the French government for the letter. A party cannot engineer the circumstance that gives rise to a force majeure claim and then invoke force majeure. The self-created nature of the trigger is, by definition, incompatible with the doctrine.
Second: the letter instructed delay past 6 January 2021 — it did not instruct termination. There is a significant legal difference between "we cannot proceed right now" and "we are entitled to walk away entirely." The letter, at most, supported a temporary pause. LVMH used it to argue for permanent termination of a USD 16 billion agreement.
"A force majeure event you organised is not outside your control."
The force majeure argument illustrates a broader principle: courts — including Delaware courts applying well-developed M&A jurisprudence — are deeply sceptical of arguments that allow a buyer to escape a binding commitment on grounds that it substantially controlled or contributed to. The doctrine is designed for genuine acts of God, not strategic exits dressed in governmental language.
Specific Performance: The seller's most powerful tool
Tiffany did not sue LVMH for damages. It sued for specific performance — a court order requiring LVMH to complete the acquisition at USD 135 per share. This is an important distinction.
Specific performance is available in Delaware — and is increasingly standard in major M&A agreements — because companies are unique assets. No amount of money can fully compensate a seller for the loss of a deal at a specific price with a specific counterparty. If LVMH walked away, Tiffany could not simply find another buyer at USD 135 per share and be made whole. The specific performance right acknowledges that reality.
Delaware courts have shown consistent willingness to enforce specific performance in M&A agreements where it is contractually available and the underlying legal conditions are met. This is not a theoretical right. It was the credible prospect of being ordered to complete a USD 16.2 billion acquisition — without the ability to renegotiate any term — and that brought LVMH to the settlement table.
The USD 425 million discount that LVMH ultimately negotiated reflected precisely this dynamic. LVMH's choice was not between paying USD 16.2 billion and walking away free. It was between paying USD 16.2 billion under court order, or negotiating a settlement. The USD 425 million reduction was the price of the litigation risk it had run and — on the strength of the legal arguments available to it — partially conceded.
"Specific performance gave Tiffany the one thing that mattered: the ability to force LVMH to the table with no walkaway option."
Katarina Strandberg Comments
STG — Lawyer's Take: What Buyers and Sellers must negotiate
Read the MAE carve-outs as a risk allocation clause. Every item in the carve-out list is a risk you are accepting as a buyer. General economic conditions, pandemics, industry-wide events, geopolitical disruption — if these are carved out, you are obliged to complete even if they materialise and severely damage the target. Before signing, map the carve-outs against the most plausible downside scenarios and confirm you can absorb them.
Understand exactly when the reverse termination fee is your exit — and when it is not. The break fee is often the wrong number to focus on. The question is: in what specific circumstances can I pay the fee and walk away, versus in what circumstances will I be compelled to complete against my will? If specific performance rights are available to the seller in most termination scenarios, the fee is only relevant in a narrow slice of outcomes. Know the architecture before you sign.
For sellers: negotiate specific performance as a priority, not an afterthought. The LVMH case demonstrates that specific performance rights are, combined with ehll-or-high-water clauses, the seller's strongest protection in a deal that the buyer attempts to exit on weak grounds. Sellers should push for specific performance rights that are available in as broad a range of circumstances as possible, with limited conditions on their exercise. A buyer who cannot walk at break fee price and faces a credible specific performance claim has very limited leverage in any dispute.
Force majeure clauses must be drafted, not assumed. Most commercial contracts contain generic force majeure language. In a major acquisition agreement, the scope and operation of force majeure — including what constitutes a qualifying event, who bears the burden of establishing it, and what remedies are available — should be specifically negotiated. Generic language will may be construed against the party invoking it. A buyer who wants real protection against government-mandated delays needs specific, precisely drafted provisions — not a boilerplate clause.
The "hell-or-high-water" commitment should match the premium paid. In a deal involving a significant premium, sellers are seeking to ensure deal certanty. A buyer who is not prepared to give that commitment — perhaps because it is concerned about regulatory approvals, financing contingencies, or market conditions — should negotiate a lower premium and explicit walk rights, not sign at a high premium and then look for legal exits when circumstances change. The premium and the certainty of closing are two sides of the same bargain.
If you are the buyer
→ Map the MAE carve-outs to your worst-case scenarios before signing
→ Understand your walkaway rights: break fee vs. specific performance exposure
→ Assess whether your force majeure clause provides genuine protection or just language
→ Price the certainty you are committing to — into the premium you agree
→ Build in robust MAC-triggered termination rights where the target's business is genuinely uncertain
→ Try to keep internal communications consistent with external commitments from signing through to closing
If you are the seller
→ Push for specific performance rights when you seek deal certanty
→ Negotiate away or narrow the MAE clause aggressively — carve out all systemic and market risks
→ Resist broad MAC provisions that give the buyer discretion on what qualifies
→ Seek a reverse termination fee that reflects genuine deterrence, not an easy exit
→ Consider "certain funds" language if the buyer's financing is not already committed
→ Know your specific performance rights and be prepared to exercise them quickly if needed
The Broader Lesson
The LVMH–Tiffany case is not primarily a story about pandemic disruption or French government letters. It is a story about what happens when a sophisticated buyer realises that the contract it signed does not give it the flexibility it thought it had — and the limits of creative legal arguments in the face of a well-drafted, seller-protective agreement.
The Tiffany legal team held a strong hand because the agreement had been drafted with seller protection as a genuine priority: specific performance was available in broad circumstances, the MAE carve-outs were comprehensive, and the reverse termination fee was available to LVMH only in limited scenarios. That drafting reflected careful negotiation at signing — and it determined the outcome of the dispute ten months later.
The lesson is not that sellers always win. It is that the allocation of risk in a major acquisition agreement is determined at signing, not at closing, and not in a courtroom. By the time a dispute arises, the question of who holds the stronger legal position has largely already been answered by the language the parties agreed to months or years earlier.
M&A agreement drafting — particularly the interaction between MAE provisions, specific performance rights, force majeure clauses, and termination mechanics — requires experienced M&A counsel who understands how these provisions operate together in a live dispute. Getting the architecture right at signing costs a fraction of what it costs to litigate it afterwards.
Advising on an acquisition, merger, or major commercial transaction?
Contact Kat Strandberg
This article is written for general informational purposes and does not constitute legal advice. All references to the LVMH–Tiffany dispute are based on publicly available information, contemporaneous press reporting, and publicly filed court documents. For advice on your specific transaction, please contact STG Corporate and Commercial Law AB directly.