TIF – LVMH … and JANA: A Brief Review of the Deal, Standstills, and Hostility in M&A
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In November 2019, LVMH announced it was acquiring TIF for $135/share with an anticipated closing in 2020 and utilizing a reverse triangular merger structure with the material terms of the agreement fairly straightforward: Delaware law, no-shop but window shop exception, fiduciary outs, standard definition of a superior proposal, ~3.5% breakup fee, no reverse breakup fee, standard termination rights, a fairly standard MAE, a hell-or-high-water clause,[1] and majority approval for a TIF shareholder vote.
Following the November 2019 signing, covid hit and LVMH announced that it would not be able to close the deal by the agreement’s drop-dead date of November 24, 2020[2] after the French Government sent a letter[3] to LVMH directing it to pause the deal until 2021. Following that, TIF would go on to file a lawsuit in Delaware in September 2020 to force the deal through, and under the threat of litigation, the two parties would come to an agreement and cut the deal price to $131.50/share along with some modifications to the terms of the agreement to increase deal certainty[4].
So, all those events in the post-signing period were interesting, but what happened prior to the November 2019 announcement? Well, some events that are pretty illustrative of how the line between a hostile and friendly deal is not always clear during its most interesting phase[5].
A couple of months prior to the November 2019 official announcement, the companies had been in the public spotlight starting with a short period when it was unclear to observers whether the deal would turn fully hostile[6]. “Observers” being the key word because the October leak regarding a potential deal was a hostile act, even if it was relatively shallow on the spectrum of possible hostile actions. Leaks usually happen when there’s a stalemate in negotiations and can skew in the target’s favor in that the target may see a pop in its publicly traded price. That’s why there’s such a focus on the unaffected price when advisors are trying to determine the proper premium.
In this case, the leak worked in TIF’s favor. On Friday, October 25, the day before the leak TIF was trading at $98.55. On the subsequent Monday, October 28, TIF was trading at $129.72. That’s a 32% increase over the weekend due to the leak. In fact, TIF stated that it agreed to LVMH’s acquisition proposal “only after LVMH increased its unsolicited bid five times, including three price increases over the course of a single day, totaling collectively $1.8 billion[7]”, and what started at $120/share would elevate to $135/share during the courtship phase thereby bypassing the need for any further hostility[8].
And long before the October 2019 leak of a potential tie up between the two companies, there had been a shareholder activist at TIF, Barry Rosenstein’s JANA. In February 2017, TIF and JANA announced a cooperation agreement whereby Francesco Trapani (a key man here[9]) and two others were appointed to the Board. Trapani’s history with LVMH was extensive and deep having served as CEO, and director of Bulgari (acquired by LVMH), a director on LVMH’s Board, and as a senior advisor to Bernault Arnault (Chair and Chief of LVMH).
As part of the standstill in the cooperation agreement[10], JANA and Trapani were prohibited from certain actions with respect to TIF, including launching a proxy contest or seeking to effect an M&A transaction. Essentially, the standstill was in effect unless TIF removed JANA’s nominees from its slate at subsequent annual meetings, or TIF breached its obligations under the agreement. According to the Company’s filings, the standstill finally expired in February 2020. That’s kind of interesting because it tells us a little bit about the scope of a standstill and how they can be interpreted. Afterall, most of the negotiations for the LVMH – TIF merger started in October 2019, months before the expiration of the standstill.
So, let’s take a look at what happened following the standstill agreement with JANA. Based on my review there were three semi-interesting dates within the standstill period (2/17 – 2/20) to note:
July 12, 2017: A few months after the JANA settlement, TIF appoints Alessandro Bogliolo as its CEO, an executive with ties to LVMH, having previously served as a senior executive at Bulgari. Once Bogliolo stepped into the role, he announced a review of the company’s strategic plan.
October 15, 2019: Bogliolo meets with Antonio Bellonia, Group Managing Director at LVMH. Bellonia presents Bogliolo with an unsolicited proposal of $120/share.
October 16, 2019: The Board (including Trapani) meets with TIF’s outside counsel to discuss the offer. Later that day, Trapani, who sits on the Board of TIF, and still subject to his own standstill meets with TIF’s chair to state that he will recuse himself from any further consideration of the LVMH proposal and communicate only with Farah and TIF’s GC regarding a potential deal.
So, no obvious issues here with the enforcement of the standstill, but still kind of interesting to see some of the contours[11]. Bogliolo is one or two steps removed from the standstill. The chain is essentially: JANA got to appoint its three members to the Board (including Trapani), it’s likely that Trapani and Bogliolo knew each other prior to the appointment based on their mutual respect histories with LVMH / Arnault, the Board (including JANA’s Board members & Trapani) was responsible for hiring Bogliolo, Bogliolo got the strategic review process going, and Bogliolo met with Bellonia who submitted a proposal to acquire the Company. The strongest connection between those chains is Arnault, not JANA or Trapani. In my view those events fall short from triggering the obligations of the standstill on both JANA and Trapani’s part and obviously TIF wouldn’t want to enforce it if it was also interested in the transaction (although it’s not entirely clear they were from the start). But, it is interesting when you consider that Bogliolo was probably a mutual hire (in the sense that it was supported by both JANA and TIF) and that acting “in concert” is a notoriously vague term in other contexts.
[1] The hell-or-high-water provision does specifically reference CFIUS, but not specifically France (although its implicit in the regulatory provisions). Interestingly, cross-border politics also found its way into another hostile matter… the legendary Broadcom - Qualcomm – NXP – Elliott saga of 2018, which was ultimately ended via Presidential Order upon recommendation from CFIUS.
[2] “This Agreement may be terminated and the transactions contemplated by this Agreement may be abandoned at any time prior to the Effective Time, by either the Company or Parent if: (a) the Merger shall not have been consummated on or before August 24, 2020 (the ‘Outside Date’); provided, however, that if the conditions to Closing set forth in Section 8.1(b) or Section 8.1(c) have not been satisfied or waived on or prior to such date but all other conditions to Closing set forth in Article VIII have been satisfied or waived (except for those conditions that by their nature are to be satisfied at the Closing), the Outside Date may be extended by either party to a date not beyond November 24, 2020 and such date, as so extended, shall be the ‘Outside Date’”.
[3] France’s Minister of Europe and Foreign Affairs, Jean-Yves Le Drian. Reuters writes that it was France’s presidential palace who directed Drian to write the letter…but was there anyone directing the presidential palace?
[4] Here’s a quick piece from John Jenkins that summarizes some of those changes.
[5] The existential phase of to be, or not to be.
[6] “The Merger Agreement was the culmination of a relentless unsolicited pursuit by LVMH”.
[7] TIF’s September 2020 Complaint.
[8] Sometimes the target will use due diligence as a gatekeeping item, so if the acquirer proposes a price that gets closer to what the target wants, the target may use due diligence without accepting the bid to convey it’s getting warmer.
[9] In November 2019, Trapani resigned from the Board of TIF and formed a new European activist hedge fund, Bluebell Partners.
[10] Technically separate agreements, but substantively the same with respect to the standstills.
[11] I’m looking at the following language most closely, which also applies to Trapani as well: “JANA agrees that, during the Standstill Period… (unless specifically requested in writing by the Company, acting through a resolution of a majority of the Company’s directors not including the Designees), it shall not, and shall cause each of its Affiliates or Associates… not to, directly or indirectly, in any manner, alone or in concert with others…acquire, offer or propose to acquire, or agree to acquire, directly or indirectly, whether by purchase, tender or exchange offer, through the acquisition of control of another person, by joining a partnership, limited partnership, syndicate or other group, through swap or hedging transactions or otherwise, any securities of the Company or any rights decoupled from the underlying securities of the Company that would result in JANA… owning, controlling or otherwise having any beneficial or other ownership interest… in 10% or more of Common Stock outstanding at such time.”
