TheChek News Flow

French group’s foray into sport comes as luxury industry seeks to grow its audience and popularity

LVMH will become a top sponsor of car racing franchise Formula One as the leading luxury group pushes further into the world of sport.

The agreement will start in 2025 and run for a decade, LVMH said on Wednesday. The deal is worth just under €100mn per year, according to two people with knowledge of the arrangement.

It will involve several of Bernard Arnault’s luxury empire’s top brands including Louis Vuitton, the world’s biggest luxury brand by sales, drinks division Moët Hennessy and watchmaker Tag Heuer.

The deal was led by Frédéric Arnault, the second youngest of the billionaire patriarch’s five children, who was promoted to head LVMH’s watchmaking division at the start of the year.

He was previously chief executive of Tag Heuer and is a graduate of France’s top engineering school Ecole Polytechnique, like his father.

“The opportunity to scale our commercial arrangements is emblematic of the vision we have for Formula 1 as the business continues to grow . . . We look forward to working with Bernard and Frédéric Arnault in the years to come,” said Greg Maffei, president and chief executive of Formula 1 owner Liberty Media.

Luxury groups have increasingly targeted sports to grow their audience and popularity. While luxury has long been associated with elite sports like show jumping and tennis, links with more mainstream sports like basketball and football are becoming more frequent.

The French group’s deeper foray into the world of racing follows its high profile sponsorship of the Paris Olympics, where bars flowed with Moët Hennessy drinks and athletes were awarded medals made by LVMH-owned jeweller Chaumet.

However, a several minutes long sequence in the opening ceremony centred around monogrammed Louis Vuitton trunks raised some eyebrows as sponsors pushed into previously ad-free spaces in the global sporting event.

Earlier this year LVMH launched a new Louis Vuitton ad campaign featuring tennis stars Roger Federer and Rafael Nadal hiking in the Italian Dolomites. It was a new iteration of a 2022 campaign featuring footballers Cristiano Ronaldo and Lionel Messi playing chess.

Formula One, meanwhile, has been on a years-long push into new markets and new audiences. Since US-based Liberty Media acquired it for $8bn in 2017, the racing calendar has expanded to flashy locales in Miami and Las Vegas, and Netflix docu-series Drive to Survive has helped boost viewership.

The share of female F1 fans has risen to 40 per cent, from 32 per cent in 2018, helping to attract women-focused sponsors. Earlier this year, Charlotte Tilbury cosmetics debuted the first sport sponsorship of its own with the F1 Academy.

All five Arnault children have operational roles within family-controlled LVMH. All except the youngest, Jean, have seats on the group’s board. Frédéric and Alexandre, an executive at jeweller Tiffany, joined their siblings on the board earlier this year.

Splitting up the company would face challenges, but there is no perfect solution to its struggles

In recent years, CVS Health CVS -2.13%decrease; red down pointing triangle has sought to transform itself from a retail pharmacy chain to a health conglomerate combining everything from the doctor to the insurer under one roof. It might still have a shot at building a health juggernaut, but perhaps without the well-known pharmacy that brought everything together.

CVS is considering a breakup and other strategic alternatives as pressure from investors builds on management in the midst of disappointing earnings results and a depressed stock. Over the past five years, its stock is basically unchanged, compared with a near doubling of the S&P 500. On Monday, the hedge fund Glenview Capital Management met with CVS to discuss ways to improve operations, The Wall Street Journal reported.

Separating the pieces would be complicated because it would risk taking away certain benefits that the units enjoy from being integrated. What to do with the pharmacy benefit management business Caremark would be the most difficult question because it is complementary to both the insurance and the pharmacy sides. For that reason, it is far from clear that a breakup will actually happen. CVS shares fell 2.1% on Tuesday after news that a breakup was being considered.

If the company does pursue a split, a key advantage would be focus and simplicity. What a breakup would look like hasn’t been outlined, but it is safe to assume that the goal would be to separate the structurally challenged retail pharmacy stores from the more profitable insurance business, Aetna. While Aetna’s Medicare business has been struggling lately, its performance could improve as some near-term cost drivers subside. The retail chain, on the other hand, would be harder to turn around, as evidenced by the bankruptcy of Rite Aid, the struggles of Walgreens Boots Alliance, and pharmacy closures across the country.

If Aetna were to break off along with the pharmacy benefit manager business, it would end up looking similar to Cigna Group, an insurer with a large PBM. Since the Cigna-like company would be more focused, without the financial headwinds attached to the retail pharmacy, it could arguably fetch a better multiple from investors. Cigna’s forward price/earnings multiple is 11.3, compared with 8.5 for CVS. An even more favorable comparison might be Humana, a Medicare-focused company with a smaller PBM, which fetches a 15.7 multiple.

Aetna might not be quite as attractive as Cigna or Humana right now, but the point is that standing alone would untether it from the problems in the pharmacy space.

The bigger question is whether a vertically integrated health company really needs a retailer that sells such items as foot cream and potato chips. Synergies between pharmacies and other healthcare services might not be as great as some had hoped. Walmart and Walgreens have both been pulling back from primary care recently after finding out how challenging it is to make money in clinics.

In recent years, CVS tried to grow beyond its roots by attempting to chart a course similar to that of UnitedHealth Group, the large healthcare organization with thousands of doctors, a pharmacy benefit manager business and an insurance arm. CVS acquired Aetna for nearly $70 billion in 2018. More recently it acquired Oak Street Health, a primary-care doctor chain, for $10.6 billion, and Signify Health, a home-care provider, for $8 billion.

The strategy of bringing together insurance and medical care requires careful execution and expertise. “If you put a V-8 engine in your car, it doesn’t automatically make it a Ferrari,” says Justin Simon, a portfolio manager at the healthcare hedge fund Jasper Capital Management. “You need to fine-tune ways to drive synergies between owning doctors and an insurer.”

A breakup, however messy, would allow the company to separate the intractable problem of how to fix the retail pharmacy from the more appealing, but still challenging, job of building a vertically integrated health company.

The architects of the breakup could look to clean up the insurance business by leaving a lot of debt with the retail pharmacy entity, Simon argues. That would leave the other company looking a lot more like Walgreens, a troubled company in its own right. But the argument is that the sum of two separate entities would lead to more value being created for investors than what the integrated CVS has been able to deliver.

There isn’t a straightforward answer for CVS. It could yet find a way to extract value from its disparate businesses while they stay together. But after so many years of struggles, it is clear that something significant needs to happen to give the company a new direction.

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• Iran threatened on Tuesday that if Israel responds with force to the nearly 200 missiles it launched on Tuesday, it will attack again.
• If that happens, Israeli officials say all options will be on the table
  — including strikes on Iran's nuclear facilities.
• "We have a big question mark about how the Iranians are going to respond to an attack, but we take into consideration the possibility that they would go all in, which will be a whole different ball game," an Israeli official said.

• The Israeli response could include airstrikes from fighter jets as well as clandestine operations similar to the one that killed Hamas leader Ismail Haniyeh in Tehran two months ago.

• This time around the Israeli retaliation will be much more significant, Israeli officials said.

• The meeting started as the first wave of Iranian ballistic missiles made its way towards Israel.
• Many of the Iranian missiles were intercepted by Israeli and U.S. missile defense systems. Those that weren't intercepted mostly hit open areas near an air force base in southern Israel, the Mossad headquarters and a military intelligence base north of Tel Aviv.
• An Israeli defense official told Axios dozens of Iranian missiles were fired at the Mossad headquarters but none hit inside the compound.

• "Iran made a big mistake tonight and it will pay for it," Netanyahu said in a video his office released.
• "The regime in Iran does not understand our determination to defend ourselves and our determination to retaliate against our enemies. They will understand. We will stand by the rule we established: whoever attacks us, we will attack him," Netanyahu continued.
• Two Israeli officials said the cabinet meeting ended after several hours with the understanding that there will be an Israeli military response but without a clear decision on what that response will be.

• While Israel is going to respond on its own, it wants to coordinate its plans with the U.S. because of the strategic implications of the situation. Another Iranian attack in response to an Israeli retaliation would require defensive cooperation with U.S. Central Command, more munitions for the Israeli air force and potentially other kinds of U.S. operational support, the Israeli official said.
• President Biden said on Tuesday that the U.S. and Israel are discussing the response to the Iranian attack and "it remains to be seen" what the outcome will be.
• A U.S. official said in talks between the Biden administration and the Israeli government on Tuesday the U.S. made clear it supports an Israeli response but that it thinks it needs to be measured.
• Biden said he will speak with Netanyahu about the response to the Israeli attack. An Israeli official said the call could take place on Wednesday several hours before the Jewish holiday of Rosh Hashanah.