TheChek News Flow

Erhard Grossnigg wants cash to avoid selling incomplete projects at knockdown prices

Administrators at René Benko’s collapsed European property empire are seeking €350mn from investors to forestall a painful fire sale of assets in the coming weeks.

Signa Prime and Signa Development, the two holding companies that own the bulk of the wider Signa Group’s property assets, wrote to shareholders just days before Christmas urging them to stump up fresh capital, according to a copy of the letter seen by the Financial Times.

Erhard Grossnigg, the companies’ administrator, said hundreds of millions of euros were needed “quickly” to tide the companies over until April and avoid writedowns.

Signa confirmed the figure but declined to comment further on the content of the letter. A spokesperson for Grossnigg declined to comment.

Without the money, the two businesses will have no option but to try to sell their assets in an already troubled commercial property market.

Both filed for insolvency on December 28, with debts of €5.6bn.

Their parent company, Signa Holding, was the first domino to fall in Benko’s sprawling property empire — a network of more than 1,000 different companies, foundations and trusts — when it entered insolvency in November. It owes a further €5bn. The total debts owed by the Signa Group are unknown but estimated by analysts to be in excess of €15bn.

The needs of Signa Prime are most pressing in the short term, with the group requiring €300mn, according to the letter. The company owns some of Benko’s most prized assets, which include the half-finished Elbtower in Hamburg, Germany’s third-largest skyscraper, as well as luxury department stores in the country’s biggest cities, and some of the most valuable real estate in Vienna.

The FT reported last month that Signa Prime had already taken a steep discount on its most prized property, as it struggled to stay afloat last year.

The company sold half of the KaDeWe building in Berlin — the city’s most famous department store — to Thailand’s Central Group, which already owns half of the KaDeWe operating company.

The building was valued by Signa Prime at more than €1.5bn. It has a €500mn mortgage against it. The 50 per cent equity stake was sold for €300mn, implying a 30 per cent discount to its most recent valuation.

In the letter to shareholders, Grossnigg noted that new money was particularly needed to try to complete some projects, which in total could be worth billions less than anticipated if they are sold as construction sites.

He also warned that banks had first claim on many individual assets of Signa Prime and Signa Development because of direct mortgages against the properties themselves, meaning that a fire sale could completely wipe out value for lenders and shareholders lower down the chain.

Investors in Signa have been coming to terms with the bewildering complexity of the company since its collapse late last year. The accounts of the Signa Group were never consolidated, and thanks to the way Benko ran the business — shifting around assets, cash and debts — some investors have been left unaware of what assets they have a claim on.

Series A funding raises more than $100 million for MAPS amid a flurry of deals by competitors

The Multidisciplinary Association for Psychedelic Studies, a nonprofit leader in the pharmaceutical psychedelics industry, has raised more than $100 million in a Series A private stock sale.

MAPS needed the money to fund the final stages of its application for regulatory approval to sell MDMA, also known as Ecstasy, to treat post-traumatic stress disorder, the organization said in an announcement Friday.

The share sale, through MAPS Public Benefit Corporation, comes amid a flurry of financings by companies jockeying to come first to market with psychedelic treatments for mental illnesses that are hard to treat with conventional drugs. The Wall Street Journal previously reported that the MAPS deal was in the works.

Publicly listed Atai Life Sciences announced this week a $50 million investment in U.K.-based Beckley Psytech, a private company developing a rapid-acting psychedelic medicine for depression. Small Pharma, another U.K.-based manufacturer of fast-acting psychedelics, agreed in August to be acquired by Canadian company Cybin in an all-stock deal.

Compass Pathways disclosed in August an up-to-$285 million sale of stocks and warrants to hedge-fund managers including TCG Crossover Management and Ken Griffin’s Citadel Advisors. The capital will help Compass run clinical trials through late 2025 using psilocybin—the active ingredient in magic mushrooms—to treat depression, the company said. Compass is also partially owned by Atai.

Hopes are high that psychedelics could help millions of patients, but first developers must clear the expensive regulatory approval process. That is forcing many startups to sell stock at a time when biopharmaceutical valuations are low.

Investors in the MAPS Series A include Helena, an organization aimed at solving global problems; venture-capital firm Vine Ventures; a foundation funded by hedge-fund manager Joe Samberg; and a foundation funded by hedge-fund manager Steven Cohen and his wife, Alex Cohen.

The public-benefit corporation also dropped MAPS from its name and announced it would rebrand as Lykos Therapeutics. Rick Doblin, the founder of MAPS and a leader in the psychedelic legalization movement, will remain on the Lykos board of directors, and Amy Emerson, another MAPS veteran, will remain its chief executive.

MAPS reported in a September filing with the Securities and Exchange Commission that the deal would increase the value of its total shares issued to $215 million. That figure doesn’t include all of the stock sold in the Series A financing, a MAPS spokeswoman said.

MAPS has completed clinical trials for MDMA and submitted a new drug application to the U.S. Food and Drug Administration in December. The FDA is expected to determine in coming weeks whether to accept the application for review, a process that can take six to 10 months.

FDA approval would force the Drug Enforcement Administration “to reschedule MDMA making it available for prescription medical use,” MAPS said.

The second-youngest Arnault is expanding his role within LVMH

Spare a thought for 29-year-old Frédéric Arnault, chief executive of Swiss sports watch brand TAG Heuer and fourth child of LVMH’s Bernard Arnault; he can’t even go to a party without rumours circulating that he is changing jobs.

Last summer his attendance at a Bulgari event sparked speculation that he was about to take over as chief executive of the Roman jeweller. Even though he had said he was not moving to Bulgari in an interview earlier in the year, the rumours made it into the Swiss press and he was annoyed at having to deny them again. But when we meet in Geneva just before Christmas he is more sanguine. With an ironic smile, he says he has just read that he will be taking over one of the group’s fashion labels.

He isn’t. Instead, on January 8 he will step into the newly created role of CEO of LVMH Watches, with responsibility for TAG Heuer, Hublot and Zenith. LVMH is usually reluctant to share figures relating to smaller branches of its €79.2bn-revenue business, but according to Arnault the combined turnover of this triumvirate of brands is in the region of SFr1.6bn (£1.5bn).

Hard luxury is becoming more important for the group and the family. In addition to Arnault’s move, his younger brother Jean runs watchmaking at Louis Vuitton, and has relaunched the Gerald Genta and Daniel Roth brands, while his older sibling Alexandre is at Tiffany, acquired by LVMH for $15.8bn in 2020 and treated to a Peter Marino-revamped flagship last year.

LVMH entered watchmaking in 1999 with the acquisition of TAG Heuer and Zenith, when Arnault was five years old. It is almost as if a job was kept open for him as he attended first the famous Lycée Louis-le-Grand, then, like his father, l’École Polytechnique, finally becoming the first Arnault to work in the watch industry in 2017 when he joined TAG as head of connected technologies.

Not the case, he says. “It was really my will and my decision to join the [LVMH] group. My father never pushed me. My alternative was launching a tech start-up, which I did with a friend from school, in mobile payments, and we sold it to a bank.” BNP bought the 18-month-old business, Neos, in early 2018, shortly after Arnault joined Tag Heuer.

Tech bro phase out of his system, he chose to join the watch brand in part because the TAG part of the name is an acronym for Techniques d’Avant Garde. “Being an engineer,” like his father, “I was trained in mathematics, applied mathematics, computer science, and I really like the idea of disrupting, innovating and creating through science,” he says. That’s one thing you notice pretty quickly about Arnault: he is conspicuously clever. He plays the piano to concert level and is also keen on sports, which first brought him into contact with TAG when he was 12.

“My first watch was a TAG Heuer Aquaracer given to me by my father. Loving sports myself, I think it’s the sportiest brand in watchmaking.” Then, almost as if he feels expression of a personal opinion is slightly irresponsible, he quickly adds: “we validated that with surveys, and brand studies: sporty is one of the characteristics that’s stood out the most with consumers.”

Tall, thin, fresh-faced, tousle-haired and young-looking even for 29, there is something endearingly diffident about him. Talking with him is like speaking to a conscientious postdoctoral researcher who feels the need to substantiate his arguments with research and data.

When he joined TAG in 2017, his first job was building the smartwatch team of 60 people working in Paris. He took over as CEO in 2020 and set about “elevating the product and the brand”. Perhaps unsurprisingly, given LVMH’s raison d'être, he feels “it was extremely important to consider, treat, and develop TAG Heuer as a luxury brand” even if it meant venturing into price categories way beyond the brand’s comfort zone of SFr2,000-3,000 (£1,870-2,800). “There was a ceiling,” he says. The brand had never sold anything over SFr50,000 (£46,700) “but we broke it completely.”

The ceiling-smasher was the Carrera Plasma Diamant d’Avant Garde, a half-million euros’ worth of Tourbillon Nanograph movement, Isograph carbon nanotube hairspring, polycrystalline diamond dial and black sandblasted aluminium liberally smothered with lab-grown diamonds. It was a bold move for a brand better known for affordable sports watches, but he believes that TAG had the legitimacy. Annual sales of the model are in “the tens”, he says, with customers waiting up to a year to take delivery. “We’re watchmakers since the 1860s. If you develop a product with the best technical features, it has a cost. But if the design is right, if the brand is consistent through all these touch points, there’s no reason why the customer wouldn’t buy it.”

One of those “touch points” was associating TAG with Porsche, with whom TAG struck a long-term, global brand partnership three years ago, spanning specialised watch launches to traditional motorsport sponsorship and customer events. Both brands use the name Carrera for famous products, and both have a long history in motorsport, but they had never worked together. “We tried many times in the past but never managed to make it happen. But we felt it would send a clear message on who we are, so we took the time to build a relationship with the Porsche team.”

A return to Formula 1 with Red Bull was another. But it isn’t all fast cars and €500,000 watches. One of the big hits of last year was the SFr6,200 (£5,800) Carrera Glassbox, a name referring to sapphire crystal shaped like the domed watch glasses of the past, which imparts a retro look to a modern watch. The period style watch glass has been a bit of an industry trend, and is exactly the sort of detail that watch geeks get off on. It was introduced to mark the 60th anniversary of the Carrera watch and celebrated with a short — and really rather funny — film starring brand ambassador Ryan Gosling.

Arnault believes that the strategy of brand elevation is paying off. “In 2017, the average selling price was around SFr1,800. This year [2023], we are a little over SFr3,000. Since I became CEO in June 2020 [a year watch sales decreased by 30 per cent on average across the industry due to Covid-19, according to Bain] sales have grown by 50 per cent, and 2023 will be another record year.” At the same time production has dropped from around 500,000 watches a year in 2017 to a little over 400,000 in 2023.

Growth, he says, has come from selling higher-end watches, having less unsold stock and increasing direct to customer sales through ecommerce and own-brand stores. “We streamlined our distribution, halving points of sale while doubling the number of monobrand stores to just over 300.”

Ultimately the wisdom or otherwise of this strategic shift will become clear in years to come, but what is in no doubt is his sadness at leaving TAG. He has a thinly veiled warning for his successor. “The brand needs consistency. Now, it’s really important that the strategy we put in place continues.”

When asked about plans for the other brands, he takes refuge in executive obfuscation and says it’s too early to say. When pushed, he says that Hublot is in the process of “redefining the platform overall”, whatever that means. As for Zenith, he mentions the brand having had “a very important role in the industrialisation of watchmaking” which I suppose is a holding statement of sorts while he gets his feet under the desk and his head around the brands he will be, to borrow a favourite phrase of his, “road-mapping”.

Any professional move by an Arnault, whether it is his elder sister Delphine to Dior or Frédéric to oversee watches, raises the topic of succession, a subject which he greets with a polite weariness. “We all have immense respect, admiration, and love for our father. It’s his will, and it’s also our will, that he stays in charge as long as possible. And, as you saw, he extended the retirement age [to 80], to still be CEO of the group.” Bernard is 74.

Significantly this new job will see Arnault spending more time in Paris, closer to his father. “I will still be very committed to watches, but I will be working more closely with him on strategic projects,” he says. Then, perhaps feeling he has revealed too much, he adds, “I’m here because I love what I do. I love the brands. I love the project and the journey. Succession is not a topic we think about today. It will come in due time. And he’s a master of timing.” Another trait that Frédéric seems to share with his father.

Investigation comes four months after Brussels complains of flood of Chinese electric cars

China has launched a new anti-dumping investigation into French brandy imports, escalating a trade dispute between Beijing and Brussels.

Officials at the Chinese commerce ministry said its probe into brandy imported from the EU was prompted by complaints from domestic manufacturers. Brandy is the most-imported spirit into China, and comes primarily from France.

The investigation comes four months after European Commission president Ursula von der Leyen announced an anti-subsidy probe into imports of Chinese electric vehicles, supported by French car executives and officials.

“Global markets are now flooded with cheaper Chinese electric cars,” she said in September. At the time, Brussels warned of likely Chinese retaliation.

Shares in major producers of the liquor fell on Friday, with Rémy Cointreau down more than 8 per cent and Pernod Ricard down by 5 per cent. Shares in Diageo and luxury group LVMH, which owns Hennessy cognac, also traded down by 2.6 per cent and 1.6 per cent respectively.

France’s cognac industry association BNIC said it would “fully co-operate with Chinese authorities” to address their concerns.

“We are confident that our products and commercial practices fully comply with Chinese and international regulations, and that [the] EU and China will find a constructive way to resolve any bilateral disputes,” it said.

Brussels has in recent months launched several other investigations into allegedly unfair Chinese trade practices, imposing punitive tariffs on imports of plastic for bottles and opening a probe into suspected dumping of biofuel.

Von der Leyen has complained of the bloc’s record near-€400bn trade deficit with China and led calls to de-risk relations, finding alternative sources of supply for critical products. The commission is also proposing tighter national controls on investments and exports.

Beijing has strongly criticised the EU over the probes, saying late last month that it “firmly opposes protectionist practices” and the “abuse of trade remedies”.

The commerce ministry said on Friday that the brandy investigation should be completed within one year, but could be extended for a further six months.

“This . . . is just a warning shot,” said Hosuk Lee-Makiyama, director of think-tank Ecipe in Brussels. “The EU has not actually done anything [on EVs]. The big one is yet to come.”

China imported alcoholic drinks worth about $4.5bn in 2022, according to Daxue Consulting, a China-based market research group. Brandy was the most-imported spirit, with around 37.5mn litres from French producers imported in 2022.

Premium liquor sales — particularly for cognac, a type of French brandy — were already under pressure this year as pandemic-era drinking habits and the effervescence of bars reopening post-lockdown faded.

LVMH, Rémy Cointreau and Pernod Ricard all reported declining cognac sales in their third-quarter earnings, largely because of weaker US demand.

China is the other major market for cognac, where the ongoing recovery from strict zero-Covid lockdowns was expected to help balance slower sales in the US.

Export volumes of cognac fell 18.9 per cent between August 2022 and the end of July 2023, according to the cognac producer’s association UGVC. The US is by far the largest consumer of the drink, importing more than half of bottles produced, according to the Bureau National Interprofessionnel du Cognac, with China in second place.

Trevor Stirling, spirits analyst at Bernstein, said cognac producers would be adversely affected by any tariffs imposed on exports to China. He pointed to a similar crackdown on Australian barley and wine, which hammered the local industry when China imposed tariffs in 2020.

“This is unlikely to be resolved quickly,” said Stirling. “It will hang over the industry for at least six months.”

Alongside the EU probes, France has taken its own steps to promote European-made products. In a decree to be published this month, it is restricting purchasing subsidies for electric vehicles so they cannot apply to most cars made in China, based on their environmental record.

Sir Christopher Hohn’s fund recovers from 2022 losses helped by bets on Alphabet and Moody’s

British billionaire Sir Christopher Hohn’s activist hedge fund TCI rose 32.7 per cent last year, well ahead of equity markets, helped by bets on stocks such as Alphabet and Moody’s, according to people who have seen the numbers.

The gains by The Children’s Investment fund, which manages just over $49bn in assets, mean it has more than recovered losses suffered in 2022, when it fell 18 per cent as global stock markets tumbled.

The fund’s performance in 2023 compares with a 24.2 per cent rise in the S&P 500 index and the FTSE 100’s 3.8 per cent gain. Equity hedge funds gained 6.6 per cent on average last year to the end of November, according to data group HFR.

TCI’s largest holdings include Alphabet, Canadian National Railway, Visa, General Electric and rating agency Moody’s as at the end of September, according to a regulatory filing.

Alphabet’s shares surged 58 per cent last year, driven in part by investor enthusiasm over the potential for large US technology firms to implement artificial intelligence in their services.

Moody’s was up 40 per cent, while Visa rose 25 per cent.

TCI held a $4bn position in Microsoft as of June last year, but sold it by the end of the third quarter, according to filings.

TCI invests in a concentrated portfolio of stocks that it tends to hold for long periods. Hohn has a reputation for shareholder activism, pushing for change when he disagrees with the direction taken by company directors.

In February last year Hohn pushed for Airbus to drop its efforts to acquire a stake in the cyber security arm of French IT company Atos.

He also called for three board members to resign at Spanish telecoms company Cellnex and was partly successful, with two of the three departing. The stock was up 15 per cent in 2023.

Canadian National’s ex-chief executive Jacques Ruest stepped down in 2021 after a campaign by Hohn.

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