This article is authored by Seoryung (Blair) Park, an NY-licensed lawyer with a certificate in IP and an incoming LL.M. student in Fordham Law’s Fashion Law program.

Between signing and closing a merger agreement, anything goes—economic downturns, political crises, natural disasters, or global pandemics. To manage these unpredictable interim risks, Material Adverse Change (“MAC”) or Material Adverse Effect (“MAE”) clauses let buyers walk away without liability if the target suffers a significant negative shift in business or value before closing.

However, Delaware courts, which govern most major U.S. M&A deals, set a very high bar for invoking MAC clauses. Buyers can’t bail out because a deal looks less attractive or market conditions shift. Instead, acquirers must prove a “super-sized” disruption—a clear, specific, and catastrophic event materially harming the target’s long-term value.

The Tiffany–LVMH standoff illustrates this point: even in the face of a global pandemic and sharp losses, Delaware courts demand nothing short of a super-sized devaluation to void a deal. In other words, courts won’t hand out a “Big MAC” just because a buyer loses its appetite—only a true collapse will do.

MAC Clauses: Definition, Exceptions, and the Disproportionality Exception

To terminate a deal, buyers must prove that a MAC occurred.[1] A MAC means any event that either (1) significantly harms the target’s business, finances, or operations or (2) is reasonably expected to prevent the merger or performance of contractual obligations.[2]

If proven, buyers must also prove that the issue isn’t covered by an exception (also called a carve-out).[3] Common carve-outs include systemic risks like recessions or inflation, temporary performance declines like falling profits, and deal-related risks like staff departures or customer loss following the merger announcement.[4]  

Some contracts include a disproportionality clause, a carve-back to those carve-outs.[5] The disproportionality clause allows a buyer to exit if the target suffers substantially worse harm than its peers in the same industry.[6] Without this extra harm, the buyer is usually stuck with the deal.[7]

Tiffany v. LVMH: A COVID-Era Showdown in Luxury M&A 

In November 2019, LVMH agreed to acquire Tiffany for $16.2 billion ($135 per share).[8] But by September 2020, after the pandemic rocked the global economy, LVMH tried to walk away, citing: (1) an MAE; (2) breach of the Ordinary Course Covenant; and (3) U.S.-France trade tensions.[9] Instead of litigating, the parties settled in October 2020.[10] LVMH bought Tiffany at a slightly reduced price ($131.50 per share).[11] The deal closed in January 2021.[12]

1. Did a MAC Actually Happen?

LVMH claimed COVID-19 triggered a MAC based on Tiffany’s 45% drop in Q1 2020 revenue and a $190 million swing in net income, from a $124M surplus to a $64.6M loss.[13]

However, Delaware courts require a buyer to show a company-specific, long-term deterioration in earnings or operations, not a temporary, market-wide shock like COVID.[14] The only upheld MAC in Akorn v. Fresenius involved fraud, regulatory violations, and long-term operational damage.[15]By contrast, Tiffany’s downturn was temporary[16] and aligned with the luxury sector’s 20%+ pandemic-induced decline.[17] Recovery was swift, with strong Q3 results and a 70% sales surge in China.[18]

Similarly, in Snow Phipps, the court rejected a MAC claim where pandemic losses were under 50% and short-lived.[19] Tiffany’s 45% Q1 dip, confined to a single quarter, likely fell below this threshold.[20] Its rapid rebound would have seriously undermined LVMH’s MAC argument in court.

2. Did the Loss Fall Under a MAC Exception?

Even if a MAC had occurred, it might fall under carve-outs excluding systemic risks like recessions or pandemics.[21]COVID is a systemic risk that broadly impacts the global economy and luxury retail.[22] Delaware courts exclude such risks unless explicitly included in the contract.[23] Hence, Tiffany’s 45% Q1 dip, caused by COVID and followed by recovery, failed to meet the MAC threshold.[24]

Moreover, the deal excluded general economic and political conditions from the MAC definition, broad categories under which COVID logically falls, but didn’t explicitly mention pandemics.[25] LVMH argued that pandemic carve-outs were becoming standard by 2019, with nearly one-third of billion-dollar deals including them.[26] Tiffany’s lawyers had even included such carve-outs in a prior agreement.[27]

But Tiffany countered that pandemics fell under already excluded general economic conditions.[28] This position is bolstered by industry data: fewer than 1 in 8 MAC clauses at the time explicitly referenced pandemics, and many relied on narrower “force majeure” terms interpreted strictly.[29]

That argument was strong, especially because courts interpret ambiguity against the drafter, usually the buyer. Tiffany had more substantial legal and contractual grounds to argue that COVID was already excluded under the general carve-out.[30] Thus, LVMH could only prevail by proving Tiffany was hit disproportionately.[31]

3. Was the Harm Disproportionate?

If Tiffany had suffered far worse than other luxury brands, LVMH might have had a way out.[32] But numbers didn’t support that. Tiffany’s 45% revenue dip fell within the industry range of 25%–45%.[33] This broad range indicates that Tiffany’s performance mirrored the market as a whole, reflecting the pandemic’s widespread impact on luxury retail. Tiffany’s subsequent rapid recovery and the reopenings of stores further weakened LVMH’s case.[34] Therefore, LVMH’s odds of success on any MAC claim was extremely low.

Post-COVID: Rethinking the MAC Clause in Fashion M&A

The Tiffany v. LVMH case highlights the importance of carefully defining MAC clauses in M&A deals. Moving forward, drafters must proactively define carve-outs and exceptions to ensure MAC clauses are legally sound and enforceable. At the same time, courts must apply clear, balanced interpretations of these clauses to ensure fair outcomes, considering both party-specific risks and the broader economic context.

1. Drafting with Precision

Scala provides clear guidance on negotiating MAC clauses post-COVID. Sellers should demand specific carve-outs for pandemics, epidemics, and other public health emergencies, and precisely define terms like “COVID-19 Measures” and “Government Shutdown” using unambiguous language such as “for the avoidance of doubt.” Sellers can also raise materiality thresholds, extend MAE trigger durations, and limit MAC definitions to themselves and subsidiaries to reduce risk.

Conversely, buyers should resist broad pandemic carve-outs that shield sellers and push for narrow exceptions or disproportionality carve-backs to shift risk if the seller faces disproportionate harm. Buyers may also negotiate lower quantified thresholds for triggering MAEs, shorter periods, and “Right to Terminate” clauses with liquidated damages for greater flexibility.

Finally, both parties should update covenants, warranties, and representations to explicitly address pandemic-related operational, legal, financial, and contractual risks.

2. Drafting with Realism

While Scala offers theoretical guidance, Heath and Charlston’s review of 34 post-COVID Scheme Implementation Deeds (SIDs) offers practical insights, especially relevant for fashion M&A, where shocks like COVID can disrupt deals.

First, lawyers should view MAC clauses as a non-negotiable standard in public M&A. Heath and Charlston found that every SID reviewed included a MAC clause and a “no MAC” condition precedent, reflecting market consensus on clear interim risk allocation.

Second, practitioners should include quantitative thresholds, such as drops in revenue or EBITDA, to ensure objectivity. Qualitative triggers (e.g., loss of key licenses) should still be used but paired with measurable standards to minimize ambiguity and litigation.

Third, parties should tailor MAC definitions to the context of the deal. Heath and Charlston show that both buyers and sellers are increasingly customizing clauses based on target-specific metrics like cash balances, instead of relying on boilerplate language.

Lastly, lawyers should clarify consequences. Rather than broad automatic termination rights, most SIDs now link MAC clauses to procedural steps or renegotiation windows, which reduces disputes triggered by minor fluctuations.

3. Interpreting with Balance

Drafters shape the deal, but courts play a crucial role in resolving MAC disputes. Morgan advocates for a balanced, two-stage framework to interpret MAC clauses, combining seller- and buyer-oriented perspectives.

Stage one follows Gilson & Schwartz’s seller-focused theory, which allocates risks under the seller’s control—like operational mismanagement, to the seller, while exogenous risks, such as pandemics, fall on the buyer. This incentivizes sellers to preserve value pre-closing.

Stage two adopts Miller’s buyer-focused theory, where courts assess whether an event materially changes the deal from a reasonable acquirer’s perspective. This involves comparing the target’s financials at signing and closing to differentiate between ordinary volatility and actual deterioration.

By combining these theories, Morgan’s hybrid test ensures fair risk allocation and applies an objective materiality standard. This framework reduces opportunistic walkaways, strengthens deal certainty, and clarifies that MAC clauses are safeguards, not escape hatches.

Conclusion

The Tiffany–LVMH case reaffirms that MAC clauses aren’t a buyer’s drive-thru but a high-stakes on-ramp, triggered only by clear, catastrophic, and company-specific downturns. In today’s volatile landscape, especially in fast-moving sectors like fashion, more than a Big MAC is required, only a super-sized collapse can justify hitting the brakes.

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References:

[1] Peggy Morgan, The Big MAC: How Should Courts Approach MAC Clauses in Merger and Acquisition Agreements?, 57 IND. L. REV. 725, 728 (2024).

[2] Id. at 727–28.

[3] Id. at 728.

[4] Id. at 727–28; See Vincent Scala, Changes to Material Adverse Effect Clauses Following Major Events: Evidence from COVID-19, 95 ST. JOHN’S L. REV. 549, 552–55 (2021).

[5] Morgan, supra note 1, at 728.

[6] Id.

[7] Id.

[8] Guhan Subramanian, Julian Zlatev & Raseem Farook, LVMH’s Bid for Tiffany & Co., Harvard Business School Case No. 921–049, at 4 (2021), https://hls.harvard.edu/wp-content/uploads/2022/09/LVMHs-Bid-for-Tiffany-Co.pdf.

[9] Id. at 6.

[10] Rachel Wynn & Emily Buchholz, Hard Luxury: Material Adverse Effect in the LVMH and Tiffany Merger, Minnesota Law Review (May 10, 2022), https://minnesotalawreview.org/2022/05/10/hard-luxury-material-adverse-effect-in-the-lvmh-and-tiffany-merger/.

[11] Id.

[12] Id.

[13] Subramanian et al., supra note 8, at 5.

[14] See generally Akorn, Inc. v. Fresenius Kabi AG, No. 2018-0300-JTL, slip op. at 3, 5, 7, 119, 145–48 (Del. Ch. Oct. 1, 2018), aff’d, 198 A.3d 724 (Del. 2018).

[15] Id. at 54, 89, 107, 129, 178, 182; Morgan, supra note 1, at 733.

[16] Wynn & Buchholz, supra note 10.

[17] See generally Claudia D’Arpizio, Federica Levato, Filippo Prete, Constance Gault & Joëlle de Montgolfier, The Future of Luxury: Bouncing Back from Covid-19, BAIN & CO. (Jan. 14, 2021), https://www.bain.com/insights/the-future-of-luxury-bouncing-back-from-covid-19/, at 1.

[18] Wynn & Buchholz, supra note 10.

[19] See generally Snow Phipps Grp., LLC v. KCAKE Acquisition, Inc., No. 2020-0282-KSJM, slip op. at 70–71 (Del. Ch. Apr. 30, 2021); see also Akorn, slip op. at 131–32.

[20] Wynn & Buchholz, supra note 10.

[21] Id.

[22] Id.

[23] Id.

[24] Id.

[25] Subramanian et al., supra note 8, at 4.

[26] Id. at 6–7; Wynn & Buchholz, supra note 10.

[27] Subramanian et al., supra note 8, at 7.

[28] Id. at 6; Wynn & Buchholz, supra note 10.

[29] Wynn & Buchholz, supra note 10.

[30] Id.

[31] See id.; see also Subramanian et al., supra note 8, at 6.

[32] Wynn & Buchholz, supra note 10.

[33] Id.

[34] Subramanian et al., supra note 8, at 6.