TheChek News Flow

Since Marianne Hayek, the wife of Swatch Group founder Nick Hayek Senior, died a month ago at the age of 93, the small world of Swiss watchmaking has been abuzz with speculation about the consequences that her death may have on the group’s leadership and structure.

Some industry insiders believe the Swatch Group could be broken up and some brands sold. Others are confident nothing will happen in the immediate future, particularly as resurging demand in China will boost the sales of many of its brands, such as Omega, Tissot and Longines – a positive trend that will encourage the status quo. Miss Tweed considers the group’s future.

Marianne Hayek, a stern and determined woman, kept the family together with an iron grip after her husband died in 2010. While she was alive, no serious discussion about the future of the group could take place between the three key members of her family, industry insiders say. That includes her son, Nick Junior, CEO of the Swatch Group, her daughter Nayla, who is chairman and looks after jeweler Harry Winston, and her grandson Marc, who is CEO of luxury watchmaker Blancpain and oversees luxury watch brands.

There is tension between all of them, as is often the case in families. Following Marianne’s death, each will inherit one third of her controlling stake worth several billion euros. The Hayek family controls an empire composed of major watch component and movement factories and of some 17 brands including Omega, the source of about half the group’s profits. It also owns the brands Certina, Hamilton, Rado and Swatch and produces and distributes watches under license for the French fashion brand Balmain.

Nayla is 72, Nick Junior 68 and Marc 52. Nayla is more interested in breeding horses than in jewelry and has done little to develop the Harry Winston brand, as Miss Tweed reported in 2021. Marc runs Blancpain and looks after high-end watches Breguet and Jaquet Droz but staff rarely see him, as Miss Tweed explained in 2021. Marc spends most of his time on his yacht and away from the office, industry sources say. Breguet’s sales now hover around €320 million euros, according to Vontobel estimates, or less than half what they were a decade ago. However, the situation is not serious enough for change to be afoot, most industry specialists say.

“In my opinion, they don’t hate each other enough to go as far as breaking up the group,” a former Swatch Group manager and close friend of Marianne’s told Miss Tweed on condition of anonymity. “They don’t need money. And the memory of Nick Senior is still there, but for how long, it’s difficult to say. For now, in my opinion, the most likely scenario is the status quo.”

Yet there is talk among watch executives, bankers and consultants about what could happen should Nick Junior decide to split up the group. For example, he could give Harry Winston to Nayla and give her son the group’s high-end arm that includes Breguet and Jaquet Droz on top of Blancpain. The Swiss watch chronicler Business Montres, authored by Gregory Pons, recently published a thorough analysis of the consequences of Marianne’s death. Pons argues that a split is one possibility. And, of course, many bankers would like to see the Swatch Group putting up for sale Harry Winston, for which it paid $1 billion 10 years ago, as well as Breguet which would fetch more than $1 billion.

Each would perform better and would be worth much more if run by professional managers instead of the notorious sycophants currently in place. Industry sources lament the fact that the storytelling and creativity of these two brands has been neglected in recent years. “But selling Harry Winston or Breguet would mean admitting failure,” a senior watch executive commented about the Hayek’s readiness to sell any of the family jewels.

Yet, it is clear that the Swatch Group could be performing better. Sales in 2022 rose 4.6 percent to 7.4 billion Swiss francs while many jewelers, including LVMH’s Bulgari, Tiffany & Co, Richemont’s Cartier and luxury watch brands enjoyed double-digit growth. The Swatch Group’s inventories stood at 6.8 billion Swiss francs on Dec. 31, 2022, which is close to one year of turnover. The group’s share price and valuation have also been under-performing compared with industry peers Richemont, Kering and LVMH for many years.

In spite of such lackluster results, senior management and board members continue to pay themselves handsomely. Last year, Nick Junior’s remuneration totaled 6.5 million Swiss francs while Nayla’s was 4.2 million Swiss francs, according to the group’s annual report. These figures put them in the same league as Richemont’s top executives. However, Richemont makes nearly three times as much revenue, or €20 billion, and its market capitalization is six times greater at €88 billion.

A question industry observers often ask is why an activist fund has not targeted the group to change its governance and improve performance. Activist funds Bluebell and Third Point, which both bought stakes in Richemont to bring about changes in the past two years but did not go very far, appear to have passed on the Swatch Group. The Hayek family controls not only 42.7 percent of voting rights but also the entire board of directors and leadership. Nobody challenges their decisions and strategy, and few of the group’s major institutional shareholders appear to have the determination and stamina to push for change.

The Hayeks are also bound by a shareholder pact. Marc, Nayla and Nick have first refusal if one of them wants to sell his or her shares. “No shareholder can ask them to do anything,” a senior industry source said of the trio. The Swiss press is rarely critical of the Swatch Group because it benefits from its advertising. The group has thousands of small individual shareholders, many of them Swiss pensioners who are happy to receive their dividends and their gift of a Swatch watch every year. The Swatch Group likes to remind people that, in the 1980s, the Swatch brand saved the industry from being destroyed by competition from Japan’s popular quartz movements.

The Swatch Group today is regarded as one of the country’s most important employers, together with Rolex. They are known as paternalistic companies offering generous benefits. They also help Switzerland’s watchmaking know-how and engineering shine around the world. Rolex and Swatch Group are the pride of the country and a major vector of Swiss soft power.

Yet, the list of changes frustrated investors who would like to see at the Swatch Group is long. This week, the group issued a terse statement after its annual general meeting (AGM) saying that all the resolutions were passed with “an overwhelming majority”. No details were provided. After the AGM, the Swiss foundation Ethos fired a few arrows at the Swatch Group. Ethos, composed of pension funds and institutional investors and which promotes socially responsible investment, criticized the fact that the meeting was not held in person but conducted electronically. In this way, it is easier to block certain questions.

It criticized the lack of independence of the Swatch Group’s board members. “Ethos also took the opportunity to ask theboard ofdirectors to strengthen its independence by appointing new independent members. At Swatch Group, the average term of office ofdirectors amounts to more than 17 years, while the average term of office of SPI companies is just over seven years.” The SPI, or Swiss Performance Index, is Switzerland’s overall stock market index. Indeed, most Swatch Group board members are long-time allies of the Hayeks. They refrain from asking difficult questions and are paid between €120,000-€155,000 a year plus €24,000 in expenses. The Swatch Group’s spokesperson did not reply to an email from Miss Tweed asking for details about the succession and Marianne Hayek’s death. “We have the choice not to reply,” spokesman Bastien Buss told Miss Tweed.

INVESTOR RELATIONS

Analysts and institutional investors complain that the Swatch Group does not have a dedicated investor relations office. The name of the person shown on the company’s results press release is that of the Finance Director Thierry Kenel who has little time to answer questions. The Swatch Group famously never publishes the date of its results in advance. Sometimes it calls a press conference the next day at its headquarters in Bienne, near Berne, which no overseas investor is able to attend at such short notice. Conference calls are announced on the day of the results.

Broker Bernstein wrote in a note last year that the Swatch Group was the only company it covered that behaved like this. The group does not provide transcripts or replays of conference calls. It does not use IFRS reporting standards but rather Swiss GAAP which gives them more leeway. “Add to that a CEO providing a business narrative seen by many as too rosy and out-of-synch with factual performance and you end up with a large investor audience not wanting to know about Swatch Group at all,” Bernstein said.

One experienced luxury stock investor based in Dubai told Miss Tweed on condition of anonymity: “I have not looked at Swatch Group in years. Its corporate governance is too much of a disaster for me to invest in it!”

Morgan Stanley’s latest annual watch report shows that many of the Swatch Group’s brands continue lose market share year after year. These include Omega, Longines, Tissot and Breguet. In 2020, Omega slipped into third position behind Cartier Watches and never regained its No. 2 spot. In 2022, Tissot was 11th, down from 6th in 2019, and Longines fell to 7th from 4thduring the same period. And Breguet, which was 13th in 2018, is no longer in the top 20.

“Tissot and Longines are volume brands and have become very exposed to China over the years,” said Olivier Müller from LuxeConsult who co-authored the Morgan Stanley report. “The Swatch Group was one of the first to go to China in 1990s, so they have built a significant presence there.”

CEO Nick Hayek, commonly known as Nick Junior, has been heartened by the success of the MoonSwatch, a special edition inspired by Omega’s Speedmaster Moonwatch, of which it sold 1 million units, industry analysts say. Thanks to this popular new model, Swatch enjoyed a significant rebound last year. Analysts expect the group to see strong growth this year, powered in part by resurging demand in China. If sales are on the rise, Nick, Nayla and Marc will be under little pressure to change anything, industry analysts say. However, the Swatch Group’s manufacturing facilities still have too much excess capacity, they say. That is partly because its factories stopped supplying many rival brands which have now invested in their own production facilities.

The succession at Swatch Group remains a mystery. Marc has little desire to replace his uncle. “He will refuse to be CEO of the group, he’s not built for that,” the old friend of the Hayek family said. “He’s a hedonist who does not feel like talking to investors.” Marc is said to be shy and soft-spoken, and staff rarely see him when he is in the office.

Nick regularly tells the press that Swatch Group’s leadership will stay in the family. However, the next generation is not ripe yet. Nick’s son has started working for the group but he is still in his early 20s, and Marc’s children are teenagers. So, none of them will be ready to assume the mantle in the near future. One telling detail about the fact that the family is closer than many believe is that each has a house on the Mediterranean, in Cap d’Antibes in France, and had all the fences between them removed. “At the Hayeks, they want things to remain in the family,” said one industry source who has spent a lot of time with family. “Blood first.”

Things are never simple when business is a family affair.

The luxury marketplace reports results amid scepticism about e-commerce stocks and as its YNAP deal inches forward. That, plus what else to watch for in the coming week.

Last week, fashion start-ups as diverse as Warby Parker and ThredUp showed they could not only lay out a path to profitability, but stick to it. This week, the biggest fashion tech play of the last decade has its turn under the microscope.

Like those other companies, Farfetch is making moves to regain the market’s faith. It’s shaken up its executive team, cut back on marketing spend and, most crucially, is inching toward completing its tie-up with its biggest competitor, Yoox Net-a-Porter. Its fourth-quarter results, reported in February, showed a smaller decline in revenue than analysts were anticipating.

The halo, such as it was, didn’t last. Farfetch’s share price hit an all-time low on May 1. For now, the YNAP deal is one more source of uncertainty (the fact that the luxury e-tailer Farfetch is taking on also operates at a loss doesn’t help). The focus this week will likely be on nuts and bolts: reducing inventory, revving up sales in China and finding ways to get Americans to shop online that doesn’t involve delivering truckloads of cash to Instagram’s ad sales department on a daily basis.

The company will face a tough audience when it reports first-quarter results on May 18. Investors who bailed on DTC brands and fashion tech platforms last year are staying on the sidelines; most of the companies that reported stronger-than-expected results last week got a small bump to their share price at best. After so much balance sheet carnage, a quarter or two of shrinking losses or a smaller-than-expected drop in sales isn’t enough to change the narrative.

For that to happen, Farfetch and other fashion e-commerce companies need to show they’ve turned a corner, and allow their new business plans to shine. It helps to have a leading market position and enough cash to see a turnaround plan through. Farfetch has both of those things, especially once the YNAP deal is complete. The question is whether it will be enough.

The night was held to celebrate the Paula’s Ibiza collection.

Mytheresa knows how to throw a party. The luxury German e-commerce company was back in Los Angeles on Friday night, this time to celebrate Loewe and its Paula’s Ibiza collection. Curating a setting — and guestlist — that’s on brand, the two brought out the L.A. cool kids for a club night inside the Sheats–Goldstein Residence in Beverly Hills.

The likes of Gracie Abrams and Omar Apollo roamed the concrete-covered space to the beats of DJs Pascal Moscheni, Marea Stamper — better known as The Blessed Madonna — and duo Steven and Chris Martinez of The Martinez Brothers. Among those lighting up the dance floor were photographer Gray Sorrenti, daughter of Mario Sorrenti; skateboarder-actress Ajani Russell, and music artist Daniel D’artiste. Everyone wore their best Loewe; Gabrielle Union and husband Dwyane Wade stood out in head-to-toe ensembles from the brand. Union wore its familiar ombré, yellow-orange “fennel” cotton tank with baggy black trousers, while Wade sported a “daybreak” blue pocket shirt and matching split hem pleated pants.

The couple were among the VIP guests at a private dinner — alongside Ali Wong, Dan Levy, Kit Connor, Kaitlyn Dever and Camila Mendes — held atop the estate’s tennis courts. The carpeted grounds overlooked a twinkling L.A. skyline.

“I’m delighted to welcome you to this wonderful evening and this breathtaking view behind me,” said Mytheresa chief executive officer Michael Kliger at the dinner table.

He was across from Loewe’s creative director Jonathan Anderson, who sat next to campaign face Taylor Russell. As brand ambassador, the actress has her pick of looks; she went with the $2,350 white spaghetti strapped dress, adorned with a fringed macramé hem, from Loewe’s newest drop.

“First of all, let me thank you, Jonathan, for partnering for tonight’s event,” Kliger continued. “We are celebrating our longstanding partnership. We are celebrating Paula’s Ibiza.”

With the success of the line — an ode to Armin Heinemann’s Spanish boutique on the Balearic island — Loewe has seen a “meteoric rise” on Mytheresa, added Kliger.

He went to explain the history behind the residence, a story known to most L.A. scenesters: Designed and built by American architect John Lautner for Helen and Paul Sheats in the early ’60s, man-about-town James Goldstein purchased the residence in 1972, commissioning Lautner to rework the property. In 2016 Goldstein revealed he would donate the entirety to the Los Angeles County Museum of Art. Since then, he’s made it available for a series of industry dinners and bashes.

“It’s not only an architectural landmark, it is actually also a landmark in popular culture,” Kliger said. “Many movies had their setting here, and one of my favorite movies had their setting here, ‘The Big Lebowski.’”

Ethan and Joel Coen’s 1998 crime-comedy starring Jeff Bridges was filmed in the home.

“I want to close with quoting ‘The Big Lebowski,’” he said to laughs. “‘The dude abides.’”

Engaged Capital seeks three seats on burger chain’s board, has 6.6% stake

Activist investor Engaged Capital is planning to run a proxy fight for three board seats at high-end burger chain Shake Shack SHAK -1.93%decrease; red down pointing triangle, according to people familiar with the matter.

Including swaps, Engaged has a roughly 6.6% stake, the people said.

Shake Shack had a market capitalization of roughly $2.8 billion as of Friday. Its shares have been cut nearly in half from an early-2021 high—even after rallying more than 50% this year—as inflation pressures have led some customers to pull back on spending and compressed margins. Shake Shack has also struggled to bring back lunchtime diners in bigger cities as fewer people commute to offices daily.

Engaged, which has been in talks with Shake Shack’s management for over six months, sent a letter to the company’s board in March detailing its proposal for new directors and other changes to help boost the restaurant chain’s lagging stock price, but the two sides have thus far failed to reach an agreement, the people said.

“We are executing our strategic plan and making substantial operational and financial progress,” a spokesman for Shake Shack said in a statement. “We are well positioned to continue enhancing value for shareholders.”

Shake Shack was founded by New York City restaurateur Danny Meyer, who has served as chairman of board since January 2010. Current Chief Executive Randy Garutti, who also has a spot on the 11-person board, has held his role since April 2012.

The company now operates more than 460 locations globally, including about 300 in the U.S., and recently has invested more money into drive-through lanes to serve suburban customers.

Engaged’s nominees are Kevin Reddy, a restaurant-industry veteran who previously served as chief executive of Noodles & Co.; Joel Bines, who led the global retail practice at consulting firm AlixPartners; and Christopher Hetrick, co-founder of Engaged and the firm’s director of research.

In addition to the new directors, Engaged has asked Shake Shack to retain a consulting firm to help improve operating efficiency and make changes to its supervoting share structure, which dates back to the company’s 2015 initial public offering.

Engaged said it has determined ways to double Shake Shack’s profitability within two years and believes the burger chain should get rid of its staggered board, which means that not all directors are up for election at the same time, the people said.

“Thus far, management has been reluctant to commit to a timeframe for regaining lost profitability,” Engaged founder and Chief Investment Officer Glenn Welling said in the letter, which was seen by The Wall Street Journal.

“In order for the company to reach its full growth potential and profitably scale this brand across the U.S. and the world, we believe significant adjustments to the company’s real estate strategy, store design, labor planning and supply chain framework will be required,” Mr. Welling said.

Shake Shack earlier this month said it was anticipating fiscal 2023 to be a record year for adjusted earnings before interest, taxes, depreciation and amortization, with its restaurant-level margins returning to between 19% and 20%.

Newport Beach, Calif.-based Engaged, which was founded in 2012, manages roughly $1 billion. The firm previously pushed Jamba Juice’s parent company to slash costs, with Mr. Welling gaining a seat on the chain’s board in 2015, and it helped shake up apparel retailer Abercrombie & Fitch’s board.

Shake Shack’s annual shareholder meeting is expected to be held in June, according to proxy materials. A window for shareholder nominations ran from Feb. 15 through March 17.

Newmont’s $17.5 billion recommended takeover of Australia’s Newcrest boosts its exposure to key metal in energy transition

SYDNEY—Newmont NEM 0.13%increase; green up pointing triangle said it has agreed to acquire Australia’s Newcrest Mining NCMGY 0.37%increase; green up pointing triangle for $17.5 billion, concluding weeks of talks over a sweetened offer by the U.S. company that wants to complete the largest-ever M&A deal in the gold-mining industry.

Newmont’s pursuit of Newcrest illustrates how gold producers are seeking to make deals as the industry is struggling to make large discoveries of the precious metal. It also extends a battle for control among miners for commodities essential for making electric vehicles and renewable-energy infrastructure, as Newcrest’s gold mines also produce significant amounts of copper.

The global mining sector is experiencing a wave of deal making not seen for years, contrasting with a lull in overall global M&A activity. While gold producers, including Newmont, had been active as they sought mines that could replace aging operations and lower costs, the industry’s hunger for deals has broadened out to encompass many of the world’s biggest mining companies, such as BHP and Glencore GLNCY 1.22%increase; green up pointing triangle.

The energy transition and government policies such as the Inflation Reduction Act in the U.S. are driving miners’ desire for deals as the run-up in commodity prices that followed Russia’s invasion of Ukraine early in 2022 has left companies flush with cash. Gold prices are hovering close to their record high, up more than 10%, as investors bet that inflation will remain elevated despite central bank action to bring it under control.

Copper is at the heart of the latest spending spree by miners, amid expectations that demand for the metal will rise as the world decarbonizes. Electric vehicles and wind farms use copper in much greater quantities than gasoline-powered cars and coal-fired power stations.

Tom Palmer, Newmont’s president and chief executive, said the opportunity to produce more copper had been a key attraction of a deal to acquire Newcrest along with the size of its resource base that can sustain mining for decades. The location of Newcrest’s mines in low-risk jurisdictions such as Canada and Australia also bolstered the appeal of a takeover.

“We will still be clearly known as a gold-mining company,” Mr. Palmer said in an interview. “But we’ll have a good exposure to copper and a growing exposure to copper, and certainly that rationale is landing with everyone that we engage with.”

Some mining companies and analysts predict the industry will struggle to raise production of copper to keep pace with demand, amid a lack of discoveries and permitting challenges. Unlike battery materials such as nickel and cobalt, copper is difficult to substitute in most applications.

Wood Mackenzie, a U.K.-based consulting firm, forecasts a deepening shortfall in copper from the middle of this decade, which could send prices of the metal higher amid a scramble for scarce supply.

To meet Paris climate targets, more than $23 billion a year will need to be spent on new copper projects over the next 30 years, 64% higher than the average annual spend over the past three decades, Wood Mackenzie said.

Already this year, BHP has completed its biggest deal in a decade by acquiring Australian copper-and-gold miner OZ Minerals. Copper is also part of the appeal for Glencore’s roughly $23 billion merger proposal for Teck Resources. Teck has so far resisted Glencore’s advances.

Newmont estimates that roughly 30% of its global reserves would be copper once it has completed the takeover of Newcrest. Copper is often found in areas with large deposits of gold.

The agreed deal for Newcrest involves Newmont exchanging 0.400 of its own shares for each Newcrest share. In addition, the U.S. company will allow Newcrest to pay a special dividend of up to $1.10 a share around the time that the deal completes. Those terms are in line with a revised offer pitched by Newmont roughly a month ago.

Mr. Palmer said the company could look to sell some assets in future, but didn’t specify where in the world those operations might be. He described Newcrest’s Lihir operation in Papua New Guinea, as “one of the great gold mines in the world” that would help to balance Newmont’s asset portfolio. Some analysts had speculated that Newmont could look to exit Papua New Guinea after completing the takeover of Newcrest, given the country’s history of political instability.

Newcrest, confirming the deal in a separate statement on Monday, said it implies a price for its own stock of 29.27 Australian dollars, equivalent to $19.53. That represents a 30.4% premium to where its shares were trading in early February prior to Newmont’s interest becoming known. Still, that is lower than the implied value of A$32.87 a Newcrest share in early April and largely reflects a fall in Newmont’s stock price on the New York Stock Exchange since then.

Energy deal combines Oneok and Magellan, forming the second-largest U.S.-based pipeline company by stock-market value

Pipeline operator Oneok agreed Sunday to buy smaller rival Magellan Midstream Partners for about $14 billion, a deal that would form one of the biggest U.S. companies involved in transporting and storing energy.

The deal’s price tag, including $8.8 billion in equity and $5.1 billion in cash, amounted to a 22% premium over Magellan’s common units as of Friday. Oneok said it would assume Magellan’s $5 billion in net debt. The deal was expected to close in the third quarter, pending the approval of regulators and investors.

The proposed tie-up would be by far the biggest U.S. energy deal announced so far this year. Some analysts have said the U.S. oil-and-gas sector is ripe for major corporate transactions this year, after energy prices surged last year and left companies with a large windfall of cash. In Oneok’s case, much of the cash portion would be financed through a debt offering, it said.

As of Friday, the companies’ combined stock-market value of nearly $40 billion exceeded that of large U.S. competitors Energy Transfer, Kinder Morgan, and Williams Cos. Among operators based in the U.S., only Enterprise Products Partners was valued at a higher amount, at $56.4 billion. Canadian rivals Enbridge and TC Energy were also worth more.

Magellan owns almost 10,000 miles of pipelines carrying refined products, such as gasoline, with dozens of interconnected storage facilities in Texas and Oklahoma through the Midwestern U.S. to North Dakota. It also owns marine storage facilities in the Houston area and Corpus Christi, Texas.

Oneok has a vast network of natural gas liquids pipelines, storage terminals and natural gas pipelines in many of the same regions in the Midwestern U.S., particularly in its home state of Oklahoma and in Texas.

Oneok expects it will be able to generate $1 billion of free cash flow in the first four years after the transaction closes.

Oneok Chief Executive Pierce Norton said the tie-up, in addition to being a vast expansion into a refined products pipeline network, would enable it to eventually grow into green energy businesses, such as so-called sustainable fuels and hydrogen.

“Our expanded products platform will present further opportunities in our core businesses as well as enhance our ability to participate in the ongoing energy transformation,” he said.

Goldman Sachs was the lead financial adviser for Oneok, while Kirkland & Ellis was the company’s legal adviser. Magellan’s financial adviser was Morgan Stanley & Co., and Latham & Watkins and Richards, Layton & Finger were Magellan’s legal advisers.