The Tiffany Deal Is Off

Growth is having a nice rebound this morning which is to be expected following yesterday’s rout. The question is whether this is the start of a long-term rotation or whether it is yet another head fake. We just don’t know yet.

Growth is beating Value today, but Low Vol is well ahead of High Beta. You don’t see that every day. As I write this, the S&P 500 is up by 1.8%.

One interesting story this morning. LVMH has decided to scrap its $16.2 billion deal to buy out Tiffany. So what went wrong?

Tiffany asked to push the deadline back a few weeks. The French government also asked for a delay because of the threat of American tariffs on French-made goods.

There’s also the angle that the deal was agreed to before the coronavirus hit but it was to be closed during the pandemic. Actually, I’m surprised more deals like this haven’t fallen apart.

It’s an odd take but the deal wound up in the center of a trade dispute between France and the U.S. The Trump administration had actually rolled back its original plans to tax a wide range of French goods including wine and cheese.

The Trump administration threatened these tariffs because, they claimed, that France’s new digital tax unfairly targeted U.S. firms.

They have a point, but the solution may not be the best idea. The French law slaps a 3% tax on revenue that tech companies get from France. The U.S. position is that the law conveniently dings U.S. firms but doesn’t hit areas where French companies are dominant.

That’s clearly true. The French authorities even referred to the tax as the GAFA Tax for Google, Amazon, Facebook and Apple.

The French have said they’re willing to repeal the tax if there’s a broader strategy to tax tech companies across economically-developed countries (OECD, Organization for Economic Cooperation and Development). In fact, Macron even said that if American firms wind up paying more taxes now under the French law than they would under a later agreement, then France would chip in to make up the difference.

For the most part, tech companies and members of Congress support the administration’s policy. The French position is that an American tariff on France is unfair because the U.S. is the one holding up an agreement on taxing tech companies.

The problem is that the U.S. is so dominant in tech that any tax will disproportionally hurt us. Hopefully, the OECD will come up with a plan to tax these companies. I don’t see how anyone is helped by countries going it alone and risking a trade war.

Posted by on September 9th, 2020 at 11:16 am


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