LVMH says it is dropping its planned $16 billion takeover of U.S. jeweler Tiffany.
The deal would have been the biggest ever in the luxury industry, and was agreed before the global health crisis.
But with sales in the sector hit hard this year questions were raised over whether the merger was overpriced.
LVMH said it had received a letter from the French foreign ministry asking it to delay the takeover, due to the threat of more U.S. tariffs against French products.
The Louis Vuitton owner also said Tiffany had asked to postpone the deal beyond the November 24 deadline, which it was not willing to do.
The stage is now set for a dispute between the luxury giants.
Tiffany said it was filing a lawsuit to force the French group to go through with the deal as agreed last year.
The U.S. company has accused LVMH of purposely stalling completion of the takeover.
It rejected suggestions that it had breached the terms of the deal.
LVMH shares were down almost 1 percent by early afternoon Wednesday; Tiffany shares dropped as much as 9 percent in U.S. pre-market trading.