TheChek News Flow

The UK insurer is probably betting that, given the juicy savings on offer, it can squeeze Aviva for more

Can an offer at a near-60 per cent premium to the market price substantially undervalue a company? 

That is what Direct Line Group’s board maintains. The UK insurer rejected a £3.3bn offer from Aviva which values its shares at 250p, or at a 57.5 per cent premium to Wednesday’s closing price. Its position nods to the perceived disconnect between share prices on the beleaguered UK stock market and underlying value. But more than anything, it looks like a punchy negotiating tactic. 

Direct Line does have a valid conceptual point. It is true that, in the UK, the extra value that a buyer needs to offer to win backing for a takeover has been rising. In local parlance, 40 is the new 30 — indicating that the benchmark premium required to even merit attention has moved up by some 10 percentage points simply to reflect the FTSE’s perceived undervaluation. 

On top of this, companies attempting a turnaround can be particularly hard to value. Direct Line was blindsided by a post-Covid surge in the cost of car repairs. Its new-ish chief executive Adam Winslow, hired from Aviva in 2023, has a plan to rebuild margins. But so far, the market has not given him much credit. 

Whether one buys into Winslow’s turnaround or not makes a difference. Before Aviva’s offer, Direct Line was trading at a meagre 6.2 times two-year forward earnings, on S&P Capital IQ estimates. Putting it on Aviva’s own multiple would imply a value of more than 220p per share — on which basis the latest bid premium would look much less compelling. It is worth noting that Direct Line successfully defended itself from a 239p-a-share bid from Belgian insurer Ageas earlier this year. 

Such considerations may, in part, explain Direct Line’s strongly-worded rebuttal. But clever tactics play just as big a role.

Aviva can clearly extract a lot of value from merging with Direct Line. Strategically it is a good fit, turning Aviva into a top player in personal and motor insurance in the UK. The larger insurer might be able to lop off 20 per cent of Direct Line’s administration costs, think Berenberg analysts, which — taxed and capitalised — would yield an extra £1.1bn of value. On top of that, a tie-in with a larger and more diversified insurer would allow Direct Line to release some regulatory capital.

Direct Line is probably betting that, given the juicy savings on offer, it can squeeze Aviva for a little more before it lets it into the tent. Its shareholders, who bid up the stock by more than 40 per cent on Thursday, will be hoping the insurer has not overplayed its hand.

Flurry of takeover activity sweeps UK market

Renewi and Loungers both agree deals while Direct Line rebuffs approach

Takeover interest in UK companies stepped up on Thursday, as Macquarie made a fresh offer for waste management group Renewi, marking the third approach for a London-listed group in less than 24 hours.

Macquarie announced a possible £701mn offer for Renewi, after its previous attempt to buy the company was rejected last year. The move came hours after Abu Dhabi-backed Fortress Investment Group announced it was buying pub and restaurant chain Loungers for an enterprise value of about £351mn.

On Wednesday night, Direct Line also said it had rejected a £3.3bn takeover offer from larger rival Aviva.

Dan Coatsworth, investment analyst at AJ Bell, said takeover activity was “red hot on the UK market”, with action being recorded at the middle and lower ends of the market cap spectrum.

“So many UK-listed companies are being taken over because the market didn’t spot the value on offer,” he added.

Shares in Direct Line, Loungers and Renewi all jumped after the approaches were revealed, with Renewi shares surging by 45 per cent to 803p by early afternoon on Thursday.

Renewi and Macquarie said they had reached a “preliminary agreement” on the Australian asset manager’s possible offer of 870p per share. The bid represents a 57 per cent premium to Wednesday’s closing price.

Takeover interest in UK-listed companies has been rising steadily this year, as beaten up share prices have helped to lure investors and drive bidding wars and buyouts.

Thirty London-listed companies received firm takeover offers for an average value of £1bn in the first half of this year, according to data from investment bank Peel Hunt, compared with 27 offers with an average value of £443mn in the first half of last year.

Meanwhile data provider Dealogic found that the value of offers for London-listed companies hit the highest level since 2018 earlier this year. Recent targets have included FTSE 100 company Rightmove, with Rupert Murdoch-owned group REA calling off its pursuit in September.

Loungers shares also surged by over 30 per cent on Thursday after it agreed a takeover by Fortress, which is majority-owned by Abu Dhabi’s Mubadala investment arm.

The US-based group, which has about $48bn in assets under management, said it would pay 310p per share for Loungers, at a 30 per cent premium to Wednesday’s closing price.

The move is the latest foray into the UK consumer sector for Fortress, which also owns Majestic Wine, Punch Pubs and Poundstretcher. Domnall Tait, managing director at Fortress, said Loungers had delivered “impressive” growth in recent years “in spite of the recent challenges faced by the wider hospitality sector”.

Meanwhile, Direct Line shares rose to a eight-month high after the insurer rejected a £3.3bn offer from its larger rival, calling it “highly opportunistic” and saying it “substantially” undervalued the business. The company’s stock surged by 41 per cent, to about 224p.

Coatsworth said: “Direct Line’s board has rejected Aviva’s approach yet its shareholders might welcome a bid, particularly if the takeout price helps to make up for the big losses from the past two years or so.”

Why Tiffany is still banking on its bird

How a ‘cartoon’ brooch became one of the jewellery brand’s biggest assets

To gaze upon one of Tiffany & Co’s Bird on a Rock brooches is to feel an overwhelming sense of joy. The figure of the bird, almost cartoonish in design, has an exaggerated crest, feathered ruff and a perfectly conical beak that looks to be mid-peck. It would be silly if it weren’t for the disproportionately large stone it perches on, which brings it into serious high-jewellery territory. The story goes that the former Tiffany chairman Walter Hoving laughed out loud when he was first presented the brooch in 1965 – before encouraging its designer Jean Schlumberger to make more. 

Some six decades on, Bird on a Rock has taken off as a bestseller. “It’s been the fastest-growing single icon since the acquisition,” says Anthony Ledru, Tiffany’s president and CEO, who joined the company after LVMH bought the house in 2021. He estimates that the category has grown 20 times between 2020 and 2023, noting that the bird has become a substantial part of the brand’s high-jewellery business. “The numbers are still very limited because of the price point, but we were only selling a few beautiful pieces a year, and now it’s what we sell the most at any high-jewellery event by far.”

Ledru, who is recounting this from a client salon within Tiffany’s landmark store in New York, has been instrumental in amplifying the motif. “For me, it was a sleeping beauty. This is one of the oldest icons we have. It’s joy, it’s optimism, it’s craftsmanship with a twist of surrealism.” He continues: “When Jean created that bird, it was exactly him – there was no brief, no marketing. He was doing it to please his imagination.” 

Jean Schlumberger, one of Tiffany’s few named designers, was renowned for his interpretations of flora and fauna. Born in 1907 in Mulhouse, France, to a family of textile manufacturers, he displayed a flair for drawing early on. In his early 20s, he moved to Paris and began making jewellery out of objects he found at flea markets, selling them to his circle of fashionable friends. He opened his own workshop on Rue La Boétie, and soon caught the attention of Elsa Schiaparelli, who in 1937 enlisted him to design collections of buttons for her suits – which included animals, shells, cherubs, fruit and insects – as well as costume jewellery. His eminence reached across the Atlantic, where he opened a New York salon with his friend and business partner Nicolas Bongard, and became close with Harper’s Bazaar editor Diana Vreeland. She commissioned him to make a brooch based on a dream she’d had about the architecture of Place Stanislas in Nancy – and loved it so much she kept it on her bedside table. 

In 1956, Hoving appointed Schlumberger as vice president of Tiffany, where he shaped an important chapter of the brand’s history, continuing to create jewels informed by the natural world. His first Bird on a Rock brooch was inspired by a yellow cockatoo he had seen around his holiday home in Guadeloupe; one of his early designs featured a diamond and ruby bird perched atop a lapis lazuli, and was sold to garden designer Bunny Mellon.

“Tiffany didn’t make so many of them in the beginning,” says Claibourne Poindexter, vice president and senior specialist in Christie’s jewellery department, adding that most of the brooches the auction house has sold from the mid to late 20th century were mounted on either amethyst or citrine. In 1995, eight years after Schlumberger’s death, a retrospective of his work was held at the Musée des Arts Décoratifs in Paris. In a tribute to the designer, the house had its famous 128.54-carat yellow diamond remounted to form a Bird on a Rock brooch. “That’s what really brought it into the mainstream.”

The recent development of Bird on a Rock is one of the more successful actions taken by Tiffany since LVMH’s acquisition, says Mario Ortelli, managing partner of luxury advisers Ortelli & Co. “The repositioning and development plan that LVMH has started at Tiffany is a big and articulated programme, especially in a category with a product cycle that’s long and slow like jewellery,” he says, adding that some actions are delivering results earlier than others. Part of this is an increase in the amount of brooches produced each year, as well as a broadening of the motif to include bracelets and watches. Selena Gomez wore one of the new designs – a necklace made of flying birds – to the Emmy Awards, while Florence Pugh wore a pendant, in which the bird is sitting with its head turned over its shoulder, to the BoF 500 Gala in Paris. 

In April, the brand launched Rainbow Bird on a Rock using paillonné enamel and colourful gems to further amp up the colour. Then there is Bird on a Pearl, which employs natural saltwater pearls from Hussein Alfardan, whose family’s collection contains pre-1930s exemplars from the Persian Gulf, before the local industry dried up. “They sold pretty much immediately,” adds Tiffany’s chief gemologist Victoria Reynolds.

Reynolds says Tiffany has noticed also an uptick in sales among collectors. “It’s a really eclectic group – a lot of men, but also a lot of women. We have one man in Florida who has four birds. He’s collecting the colours, and he wears them all.” The renewed popularity is also reflected in the secondary market, where the brooches have “consistently been bringing in more than they did before”, says Poindexter. “Typically, at auction, they were selling between $20,000 and $30,000 on the secondary market, and now we’ve seen a dramatic shift upwards.” He notes a citrine Bird on a Rock that sold in September 2022, which had a pre-sale auction estimate of between $12,000 and $18,000 but went for $75,600. “That really was the first time we all realised that these things are going up in value.” 

The interest and correlating expansion has increased the average price of Bird on a Rock, which, Ledru says sat at around $35,000 to $40,000 pre-LVMH acquisition. “It’s more like $100,000 today, all the way up to $4mn.” This has helped to bolster Tiffany’s high-jewellery business, which has been a priority for LVMH since 2021. “Brand elevation has been key for Tiffany,” says Ortelli. “One part of that is focusing on heritage, and Bird on a Rock is part of that – plus it’s unique and highly recognisable. The second is to push the high-jewellery business [that] is still small compared to other big brands like Cartier. One of the best ways to sell a $1,000 piece of silver jewellery is to promote the high jewellery.”

Tiffany plans to further extend the motif into fine jewellery, with new collections including bracelets and pendants planned at different price points. “We believe there’s room to extend it,” says Ledru, “to talk to a much greater audience.” His mission is clear – to give everyone wings. 

• FCA revises proposals for publicly disclosing company investigations
• Regulator introduces stricter public interest test for naming companies
• New approach expected to double number of publicly disclosed investigations

Britain’s financial regulator has said it will raise the bar before it “names and shames” more of the companies it investigates by stiffening a public interest test after the proposals provoked a backlash in the City of London. 

The Financial Conduct Authority said it would only announce an investigation after weighing the impact on the company being probed — including on its share price, customers and wider financial stability — under reworked proposals presented on Thursday.

The regulator also said it would consider a company’s size and its stage of development, as well as whether an announcement could “seriously disrupt public confidence in the financial system or the market” as part of a stricter public interest test.

The revised proposals mark a further attempt by the FCA to ease widespread concern among financial institutions and politicians about its plans to publicly disclose its investigations into companies since it first unveiled them in February.

Therese Chambers, co-head of enforcement and market oversight at the FCA, told reporters the initial proposals “could have been communicated better”. Steve Smart, the unit’s other co-head, said: “We have listened to a lot of the feedback we got, especially from the City.”

However, the regulator is not backing down completely from the plan, as many in the City have called for. It said the new approach was expected to lead to a doubling of the number of investigations it publicly discloses, up from the current rate of about one or two a year.

The FCA has already said it would give companies at least 10 working days’ notice before disclosing they were being investigated, instead of only one day as initially proposed. On Thursday, it said it would also give companies an additional two days after a final decision is made to bring a legal challenge.

Existing investigations would not be disclosed, the FCA said, proposing that the new approach would only apply to new probes. Its consultation will close on February 17 and its board plans to make a final decision later in the first quarter.

The FCA already had the power to name the companies it was investigating, but only in “exceptional circumstances”. On Thursday it gave examples of past investigations that it could have disclosed under its new approach, such as those into 15 advisers to pensioners at British Steel or into the UK arm of cryptocurrency exchange Coinbase.

The FCA has previously been pushed by MPs to be more transparent about its enforcement work, including a call two years ago from the House of Commons public accounts committee to announce its investigation into the British Steel workers’ pensions mis-selling scandal. 

Two-thirds of FCA investigations in the past have ended without any enforcement action, raising concerns that it could damage the reputation of companies by disclosing their identity even if the probe ended up not finding any wrongdoing. 

However, the regulator said it was reducing the number of probes that ended without action after changing its approach to enforcement from using it as a way to look for wrongdoing to focusing on areas where there were clear signs of misconduct.

It has cut the number of open investigations from 220 in April 2023 to 147, but the number of enforcement actions taken still rose from 27 last year to 38 so far this year. 

The FCA said it planned to report annually on the number of investigations that are closed with no action to “allow for full scrutiny of our approach”. Its new approach will not apply to investigations into individual people, which it will continue to keep secret in almost all cases.

David Postings, head of UK Finance, the UK’s main banking lobby group, welcomed the proposals, saying: “They have made a number of significant changes, including the increased notice period and the more rigorous approach to assessing the potential impact of an announcement within their public interest test.”

Imogen Makin, a senior regulation lawyer at WilmerHale, said the new proposals were “a significant improvement on the original version” and welcomed the acknowledgment that the plan would only lead to announcements in a very small number of cases.

This Salzburg atelier can forge you a bejewelled dagger or a simple kitchen parer

Companies curbed cross-border sales of branded clothing, says European Commission

Regulators in Brussels have fined Pierre Cardin and its largest licensee Ahlers a total of €5.7mn for breaking the EU’s antitrust rules by curbing cross-border sales of Pierre Cardin-branded clothing. 

The European Commission found that the French fashion house and Ahlers entered into “anti-competitive” deals between 2008 and 2021 and carried out “concerted practices” to protect Ahlers from rivals in the European Economic Area, which comprises the EU and three other countries.

In particular, Brussels said it found that the actions were aimed at ensuring “Ahlers’ absolute territorial protection in the countries covered by its licensing agreements”.

“Today, we have fined Pierre Cardin and its licensee Ahlers for restricting cross-border trade in clothing, in breach of competition rules,” said Margrethe Vestager, the EU’s executive vice-president in charge of competition policy. 

“This behaviour illegally fragmented our single market. It prevented consumers from shopping around for a better deal and from benefiting from greater choice.”

It is the latest in a series of cases against brands selling items at different prices in different member states, despite the single market in goods among the 27 countries. This year, Brussels fined US confectionery giant Mondelēz for restricting sales of its products between EU member states.

Retailers have long complained about so-called territorial supply constraints under which a supermarket in, say the Netherlands, has to buy branded goods such as chocolate from a supplier based in the country when it is cheaper to buy in Germany, which has a bigger market. EuroCommerce, the industry body, says big brands restrict supply if they do not sign contracts forcing them to buy domestically.

The practice costs shoppers about €14bn annually, according to a 2020 study by the Commission. 

Dutch economy minister Dirk Beljaarts told the Financial Times that he and a group of other countries were pushing the commission to legislate to forbid the practice.

“It is an eyesore for many consumers. They really do not understand why . . . pharmaceutical products are incredibly cheap in Germany and one metre over the Dutch border they are 30-40 per cent more. So I’m pushing that agenda on the EU.” Ministers discussed the issue at a meeting in Brussels on Thursday. “It’s accelerating,” he added.  

In May trade commissioner Valdis Dombrovskis promised to tackle these “non-regulatory barriers”.

“They prevent the single market from working properly and act to the detriment of consumers,” he said. The bloc has pledged to improve the working of the single market of 450mn people after reports by former Italian prime ministers Mario Draghi and Enrico Letta saying to do so was essential to boost its economy. 

A venture capitalist, a recruiter from a big company, and a newly hired remote IT worker might not seem to have much in common, but all have been caught as imposters secretly working for the North Korean regime, according to security researchers.

On Friday at Cyberwarcon, an annual conference in Washington DC focused on disruptive threats in cyberspace, security researchers offered their most up-to-date assessment of the threat from North Korea. The researchers warned of a sustained attempt by the country’s hackers to pose as prospective employees seeking work at multinational corporations, with the aim of earning money for the North Korean regime and stealing corporate secrets that benefit its weapons program. These imposters have raked in billions of dollars in stolen cryptocurrency over the past decade to fund the country’s nuclear weapons program, dodging a raft of international sanctions.

Microsoft security researcher James Elliott said in a Cyberwarcon talk that North Korean IT workers have already infiltrated “hundreds” of organizations around the world by creating false identities, while relying on U.S.-based facilitators to handle their company-issued workstations and earnings to skirt the financial sanctions that apply to North Koreans.

Researchers investigating the country’s cyber capabilities see the rising threat from North Korea today as a nebulous mass of different hacking groups with varying tactics and techniques, but with the collective goal of cryptocurrency theft. The regime faces little risk for its hacks — the country is already beset by sanctions.

One group of North Korean hackers that Microsoft calls “Ruby Sleet” compromised aerospace and defense companies with the aim of stealing industry secrets that could help further develop its weapons and navigation systems.

Microsoft detailed in a blog post another group of North Korean hackers, which it calls “Sapphire Sleet,” who masqueraded as recruiters and as a venture capitalist in campaigns aimed at stealing cryptocurrency from individuals and companies. After contacting their target with a lure or initial outreach, the North Korean hackers would set up a virtual meeting, but the meeting was actually designed to load improperly.

In the fake-VC scenario, the imposter would then pressure the victim into downloading malware disguised as a tool to fix the broken virtual meeting. In the fake-recruiter campaign, the imposter would ask the prospective candidate to download and complete a skills assessment, which actually contained malware. Once installed, the malware can access other material on the computer, including cryptocurrency wallets. Microsoft said the hackers stole at least $10 million in cryptocurrency over a six-month period alone.

But by far the most persistent and difficult campaign to combat is the effort by North Korean hackers to get hired as remote workers at big companies, piggybacking off the remote-working boom that began during the Covid-19 pandemic.

Microsoft called out North Korea’s IT workers as a “triple threat” for their ability to deceptively gain employment with big companies and earn money for the North Korean regime, while also stealing company secrets and intellectual property, then extorting the companies with threats of revealing the information.

Of the hundreds of companies that have inadvertently hired a North Korean spy, only a handful of companies have publicly come forward as victims. Security company KnowBe4 said earlier this year that it was tricked into hiring a North Korean employee, but the company blocked the worker’s remote access once it realized it had been duped, and it said no company data was taken.

How North Korean IT workers dupe companies into hiring them

A typical North Korean IT worker campaign creates a series of online accounts, like a LinkedIn profile and GitHub page, to establish a level of professional credibility. The IT worker can generate false identities using AI, including using face-swapping and voice-changing technology.

Once hired, the company ships off the employee’s new laptop to a home address in the United States that, unbeknownst to the company, is run by a facilitator, who is tasked with setting up farms of company-issued laptops. The facilitator also installs remote access software on the laptops, allowing the North Korean spies on the other side of the world to remotely log in without revealing their true location.

Microsoft said it’s also observed the country’s spies operating not only out of North Korea but also Russia and China, two close allies of the breakaway nation, making it more difficult for companies to identify suspected North Korean spies in their networks.

Microsoft’s Elliott said the company caught a lucky break when it received an inadvertently public repository belonging to a North Korean IT worker, containing spreadsheets and documents that broke down the campaign in detail, including the dossiers of false identities and resumes that the North Korean IT workers were using to get hired and the amount of money made during the operation. Elliott described the repos as having the “entire playbooks” for the hackers to carry out identity theft.

The North Koreans would also use tricks that could expose them as fakes, like immediately verifying their false identities’ LinkedIn accounts as soon as they got a company email address to give the accounts a greater perception of legitimacy.

This wasn’t the only example that researchers gave of the hackers’ sloppiness that helped uncover the true nature of their operations.

Hoi Myong, and a researcher who goes by the handle SttyK, said they identified suspected North Korean IT workers in part by contacting them to reveal holes in their false identities, which are not always constructed carefully.

In their Cyberwarcon talk, Myong and SttyK said they spoke with one suspected North Korean IT worker who claimed to be Japanese, but would make linguistic mistakes in their messages, such as using words or phrases that don’t inherently exist within the Japanese language. The IT worker’s identity had other flaws, such as claiming to own a bank account in China but having an IP address that located the individual in Russia.

The U.S. government has already levied sanctions against North Korean-linked organizations in recent years in response to the IT workers scheme. The FBI has also warned that malicious actors are frequently using AI-generated imagery, or “deepfakes,” often sourced from stolen identities, to land tech jobs. In 2024, U.S. prosecutors brought charges against multiple individuals with running the laptop farms that facilitate skirting sanctions.

But companies also have to do better vetting of their would-be employees, the researchers urged.

“They’re not going away,” said Elliott. “They’re gonna be here for a long time.”