BreakingViews : Feeling blue (TIF / MC)

LVMH’s once hot pursuit of Tiffany has descended into acrimony. That’s unfortunate, because the U.S. jeweler doesn’t look well suited to life alone. If the $16 billion deal craters, Tiffany could be worth almost a third less than its closing value on Monday.
The French conglomerate led by boss Bernard Arnault has filed a lawsuit saying Tiffany has bungled its response to the coronavirus pandemic, and claiming the right to walk. LVMH suggests that Tiffany’s future looks “dismal.” Tiffany, of course, disagrees – and the jeweler filed its own lawsuit against Arnault’s empire earlier in September, accusing it of dragging its feet over the all-cash deal.
Entertaining as all this is, the real question is what Tiffany is worth if LVMH gets away. Richemont is a natural comparison. The Swiss owner of Cartier and Van Cleef & Arpels peddles jewelry to the super-wealthy too. But its watch division is struggling, and thus Richemont is valued at a discount to its peers, Hermes International and Kering, at about 12 times the next 12 months’ forecast EBITDA, according to Refinitiv. On that same multiple, Tiffany would be worth around $12 billion.
But Tiffany isn’t quite a Richemont. For one, it’s half the size and is less diversified. It’s also more American. More than 40% of Tiffany’s sales come from the Americas, compared with one-fifth of Richemont’s. Conversely, Richemont is more exposed to Asia, which is faster growing and seems to be emerging from Covid-19 more quickly, than the United States.
In its reliance on America, Tiffany resembles another iconic homegrown brand, Ralph Lauren. The $5 billion clothier trades at about 7 times EBITDA. True, Tiffany is higher-end, and less driven by frivolous fashions. But pitched somewhere south of Richemont and a fair way north of Ralph Lauren, Tiffany ought to be worth perhaps 10 times EBITDA or roughly $10 billion – compared with its current market capitalization of $14 billion.
Why would Arnault ever have offered so much more? Perhaps because with an LVMH-style makeover, Tiffany’s brand could still sparkle. A recent UBS survey found that luxury buyers in China see Tiffany as a go-to jewelry brand second only to Cartier. It’s just that realizing Tiffany’s potential, and redesigning its global footprint, would take considerable work. With so much ill will, that proposition must be rapidly losing its appeal.

FT : Spanish court acquits ex-IMF boss over Bankia collapse

Spanish court acquits ex-IMF boss over Bankia collapse
Total of 34 defendants cleared over charges of false accounting and defrauding investors

A Spanish court has acquitted a former head of the IMF and 33 other defendants of false accounting and defrauding investors over the 2011 initial public offering of Bankia, a lender that a year later required the biggest bailout in the country’s history.

The list of defendants was headed by Rodrigo Rato, ex-IMF managing director and a former deputy prime minister and economy minister, who had faced a possible eight-year jail sentence, as well as other former members of the lender’s board. The defendants also included Bankia itself and Deloitte, the lender’s auditor.

Mr Rato, who was appointed Bankia chairman in 2010 and presided over the 2011 flotation, has always denied wrongdoing. The sentence can be appealed to the supreme court.

In its 442-page ruling, issued on Tuesday, the National High Court said that the state prosecutors failed to specify “concrete acts” by the defendants that broke the law and added that under the Spanish penal code legal entities — such as Bankia and Deloitte — could be found guilty of only a limited number of offences. These included organ trafficking, crimes related to nuclear energy and terrorism — but not false accounting.

Bankia, now 62 per cent owned by the state, is in the process of being acquired by CaixaBank, Spain’s largest retail lender, in a transaction whose terms were finalised this month.

“It is clear that the process that culminated with Bankia’s listing was intensively and successfully supervised by the Bank of Spain, the National Securities Commission, the bank recapitalisation fund and the European Banking Authority, and had the definitive approval of all the institutions,” the court ruling said.

Bankia’s IPO reduced its capital requirements, under rules at the time that were less stringent for listed banks, but its toxic real estate portfolio led to its 2012 collapse, which became a byword for the financial crisis in Spain.

The bank ultimately absorbed more than €20bn in rescue funds and in 2012 posted an annual loss of €19.2bn — the biggest in Spanish history. Its plight deepened the country’s financial crisis and forced the Spanish government to seek a bailout of its own from the EU.

“The not guilty verdict today holds no one responsible for this financial crisis, as if it was a meteorological event,” said Citizens Against Corruption, a campaigning group representing retail investors who lost their savings in Bankia shares. “We need laws to protect savers, to reform the regulatory bodies and end impunity for systemic banks that can lead the country to bankruptcy. We cannot have banks with boards that are a retirement home for politicians rather than competent professionals,” it added. 

The ruling emphasised that Spanish authorities, keen to consolidate the sector in the wake of the financial crisis, urged the creation of Bankia in January 2011 through the merger of seven regional savings banks or cajas. In many cases these were close to regional politicians, with representatives on the Bankia board from across the Spanish political establishment. The bank was listed six months later, with stakes taken up by leading Spanish financial institutions and blue-chips, as well as retail investors.

The court ruling held that Bankia’s prospectus included an “exhaustive and clear description of risks containing a warning that anyone could understand” and that its internal accounts did not represent false accounting in respect of the bank’s viability, since they were neither audited nor approved by the board. 

It added that Bank of Spain never issued an official document reflecting internal emails that expressed concern at the “very politicised and unprofessional” Bankia board and at the “questionable honour of the management” which had previously sought “state aid” and was “discredited in the market”.

Both Bankia and the Bank of Spain declined to comment on the ruling.

In 2017, Mr Rato was separately sentenced to four and a half years in prison for misappropriation of funds, along with guilty verdicts for 64 others including Miguel Blesa, who chaired Caja Madrid, the savings bank out of which Bankia later grew, and who committed suicide after receiving his jail term.

Under a “black card” scheme Caja Madrid and Bankia board members used credit cards without control for cash withdrawals, groceries, travel and jewels and clothes. The spending spree totalled about €12m between 2003 and 2012, the year after Bankia’s flotation.

FT : VW’s MAN tears up deal with German unions as it pursues job cuts

VW’s MAN tears up deal with German unions as it pursues job cuts
Truck and bus manufacturer warns of ‘perfect storm’ as it cancels agreements in order to axe 9,500 roles

Volkswagen-owned truck and bus manufacturer MAN has torn up a deal with German unions and terminated job guarantees as it seeks to force through 9,500 staff cuts.

In a rare move by a corporation in a country that prides itself on its consensual social market economy, MAN said it was forced to cancel the contracts as it faced a “perfect storm” of Covid-19 and a slowing global auto market.

In a statement on Tuesday, the Munich-based company said existing commitments to keep German and Austrian sites open would be void as of Wednesday, although these could be reinstated if an agreement was reached with workers’ representatives by the end of the year.

VW Group’s powerful employee representatives said the move was an “attack on the entire Volkswagen family”, warning that “such an approach will not lead to any success”.

“The management of Volkswagen has always been well advised to not link restructuring with the spectre of unemployment,” said Bernd Osterloh, the chairman of VW’s works council who sits on the group’s supervisory board.

“At MAN we are currently experiencing a departure from this tried and tested consensus,” he added.

MAN said it had invoked a clause that allowed it to cancel a contract with unions if faced with an unexpected external event, such as a global pandemic, that dramatically altered the economy.

“Covid has made things worse, but the commercial vehicle business hasn’t been in good shape for a decade,” the company added, emphasising that the group was planning to invest a three-digit million euro amount in new technologies.

MAN, which reported a loss of €387m for the first half of the year, is one of several German auto groups to have announced job losses in the past few weeks.

Faced with a shrinking global car market and huge investment costs as the industry shifts to battery electric and hydrogen technologies, supplier Continental said it would double the amount of jobs “at risk” in Germany to 13,000, while Mahle said it would cut at least 2,000 positions in the country.

Bavarian parts-maker Schaeffler also announced plans to axe 4,400 roles, mostly in Germany.

Earlier this month, MAN, which has had a new chief executive Andreas Tostmann since July, said it would enter into negotiations with unions to cut more than a quarter of its workforce and close some sites — but formal discussions are yet to begin.

MAN’s agreement with workers’ representatives had protected jobs in Germany and Austria until 2030.

Separately on Tuesday, industrial group Thyssenkrupp announced that it would cut 800 jobs in two automotive engineering units, 500 of which will be in Germany.

The Essen-based business said it would look to sell off or find an external partner for its unprofitable electric driving and battery assembly unit, which would need long-term investments that the cash-strapped company could not currently afford.

WSJ : Kuwait’s Ruler, a Giant of Arab Diplomacy, Dies

Kuwait’s Ruler, a Giant of Arab Diplomacy, Dies
Sheikh Sabah al-Ahmad al-Jaber al-Sabah positioned the small Arab Gulf state as a regional peacemaker and forged a close U.S. alliance

Kuwait’s ruler Sheikh Sabah al-Ahmad al-Jaber al-Sabah, a veteran diplomat who positioned the small Arab Gulf state as a regional peacemaker and forged a U.S. alliance that deepened after the country was invaded by Iraq in 1990, has died. He was 91 years old.

Sheikh Sabah, who suffered a debilitating stroke in 2019, had traveled to the U.S. for medical care following complications from bladder surgery in July. State news agency KUNA reported his death without giving a cause.

He is expected to be succeeded by his half-brother Crown Prince Sheikh Nawaf al-Ahmad al-Jaber al-Sabah, who is 83 and also in poor health. Sheikh Nawaf isn’t expected to make dramatic changes to Kuwaiti policies, but the battle to succeed him as crown prince could prove divisive and drawn out. Among the leading candidates are Sheikh Sabah’s son and former defense minister Sheikh Nasser al-Sabah and his nephew, former prime minister Sheikh Nasser al-Mohammed.

As foreign minister for four decades and then ruler since 2006, Sheikh Sabah is the figure most associated with modern Kuwait, which gained independence from Britain in 1961. He helped rebuild relations with neighbors after Saddam Hussein’s invasion sent the Kuwaiti royal family into flight, before the U.S. rallied the international community to oust the Iraqis.

The American military stayed on, placing Kuwait squarely under its security umbrella and using bases there as launching pads for the U.S.-led invasions of Afghanistan and Iraq and later for airstrikes against Islamic State militants. Most recently, additional U.S. soldiers deployed there following the strike that killed Iranian commander Qassim Soleimani in January.

Former U.S. Secretary of States James A. Baker, who interacted closely with his Kuwaiti counterpart during the 1991 Gulf War, called him a wise leader and effective mediator for regional peace and stability.

“Whether working to calm difficult rivalries between competing nations or pledging disaster relief to refugees from war-torn countries, Sheikh Sabah remained focused on helping us build a better world,” Mr. Baker said in an email before the emir’s death. “Kuwait, the Middle East and the world will miss his steady and thoughtful hand.”

Nestled between larger powers—Saudi Arabia, Iran, and Iraq—Kuwait has managed to stay on relatively good terms with its neighbors even when they were at odds with each other or the U.S. Sheikh Sabah cultivated an aura of neutrality to position Kuwait as a reliable intermediary in some of the region’s most intractable conflicts.

“Sabah al-Ahmad showed that he was able to steer a middle ground and avoid getting sucked into regional conflicts by taking sides,” said Kristian Coates Ulrichsen, Middle East fellow at Rice University’s Baker Institute for Public Policy.

The emir’s death robs the region of an elder statesman and Washington of a trusted partner, Mr. Ulrichsen added, while removing a steadfast supporter of the Palestinians at a time when Arab support for their vision of an independent state is waning.

Sheikh Sabah mediated numerous regional disputes, from the Lebanese civil war in the 1980s to recurring conflicts in Yemen, and donated generously from Kuwait’s oil wealth to humanitarian crises across the Arab world, particularly Palestinian refugees.

Most recently, he sought to resolve a flare-up pitting Saudi Arabia, the United Arab Emirates and Bahrain against Qatar that has torn asunder the six-nation Gulf Cooperation Council he helped create in 1981.

Though the dispute has outlasted him, it’s likely due in part to his efforts that it didn’t get even worse. At a White House news conference with President Trump in 2017 a few months after Qatar’s neighbors cut off most ties, Sheikh Sabah said: “What is important is that we have stopped any military action.”

At home, Sheikh Sabah drew criticism from international human rights groups over restrictions on freedom of expression and assembly, including stripping some critics of their citizenship and arresting others. While Kuwait tolerates more free speech and boasts a more powerful parliament than many of its neighbors, the emir still had the final say in matters of state.

Kuwait, which is smaller than New Jersey, controls around 6% of the world’s proven oil reserves. When Sheikh Sabah was born in 1929, though, oil had not yet been discovered in the country and his father was running the country as part of a dynasty that has passed rule between sons and cousins without interruption for nearly three centuries.

Alongside Saudi Arabia’s octogenarian King Salman, who was hospitalized briefly in July, Sheikh Sabah was among the last of an old guard in the Gulf Arab states whose ruling style was slow but deliberate and sought to build consensus in a fractious region. Sheikh Sabah embraced symbolic gestures, like flying to Qatar in 2013 to embrace its new ruler rather than just sending a congratulatory message or rushing to the scene of a rare suicide bombing in Kuwait to signal national unity in 2015.

Decades of experience had imbued the emir with a sense of balance, especially compared to the ascendant generation of younger, brasher Gulf leaders, Mr. Ulrichsen said.

“Sabah al-Ahmad consistently sought to guide Kuwait through regional turbulence by steering a middle ground and trying to ensure that disputes were settled by mediation rather than through force,” he said.

FT : EU poised to clear $2.1bn Google Fitbit deal after new promises

EU poised to clear $2.1bn Google Fitbit deal after new promises
Search group promises not to use device’s data to target advertising for a decade

The EU is poised to approve Google’s $2.1bn deal for Fitbit, according to two people familiar with the situation, after new concessions including a promise not to use the wearable company’s data to target adverts for 10 years.

Google has also offered guarantees that other devices will have access to Fitbit’s health data, with a user’s consent, on the same terms as Google and that Fitbit’s customers can continue to use services like Strava and Map My Run.

In addition, rival wearable companies will not be hindered from using Google’s Android and Cloud platforms.

The promise not to use health data gathered by Fitbit’s tens of millions of users to personalise advertising was extended from five years to a 10-year period. This pledge includes location data from any fitness activity.

The US technology giant also proposed a monitoring trustee that will be approved by Brussels to make sure that Google remains compliant with these terms, according to these people.

Google’s deal for Fitbit is facing fresh opposition from trade groups and complainants to the case, who argue that consumers will lose out. BEUC, the umbrella group that represents EU consumers, has said regulators should assume that “in practice” Google will use all of Fitbit’s “currently independent unique, highly sensitive data set”.

The deal has previously faced direct opposition from Margrethe Vestager, the EU commissioner in charge of competition policy.

Regulators are now consulting with other interested parties on the concessions offered by Google. But while a final agreement has not been reached, the merger is expected to be cleared despite internal opposition by some corners within the European Commission, these people said.

Meanwhile, a letter signed by more than 10 leading economists argued that the deal should not be approved, despite the proposals.

“The essential concern around this deal is the way that it enables Google to implement conduct that will strengthen its ability to gather and exploit health data, and undermine the ability of rivals to do so, in order to leverage its power into health and insurance markets,” the letter said.

Google said: “This deal is about devices, not data. The wearables space is highly crowded, and we believe the combination of Google and Fitbit’s hardware efforts will increase competition in the sector.

“We have been working with the European Commission on an updated approach to safeguard consumers’ expectations that Fitbit device data won’t be used for advertising. We’re also formalising our longstanding commitment to supporting other wearable manufacturers on Android and to continue to allow Fitbit users to connect to third party services via APIs if they want to.”

>>> US Gapping down

Gapping down
In reaction to earnings/guidance
:

  • MKC -4.3%, UNFI -3.4% (also CEO to retire)

Other news:

  • IRWD -14% (announced that data from IW-3718-30 did not meet the pre-specified criteria associated with a planned early efficacy assessment)
  • BEAM -6.8% (files for 4.5 mln share offering)
  • PRTY -4.7% (stock offering)
  • ZTO -3.5% (announced that the co's shares have been traded on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code "2057"
  • AXSM -3.2% (announces $225 million term loan facility with Hercules Capital (HTGC); Non-dilutive committed capital extends cash runway into at least 2024
  • TMDX -2.3% (FDA has temporarily postponed meeting reviewing co's premarket approval application for OCS Heart)
  • HYMC -1.6% (to offer 7,220,000 units, with each unit consisting of one share of its common stock and one warrant to purchase one share of common stock in an underwritten public offering)

Analyst comments:

  • HST -3% (downgraded to Underperform from Neutral at BofA Securities)
  • RLJ -1.2% (downgraded to Underperform from Neutral at BofA Securities)

>>> US Gapping up

Gapping up 

In reaction to earnings/guidance:

  • ANGO +10.1%, BIG +6.8%, RLGT +3.6%, PEB +2.9%, INFO +1.2%

M&A news:

  • NOVS +16.6% (Novus Capital (publicly-traded special purpose acquisition company) and AppHarvest enter into business combination agreement)
  • ORGS +16% (announces agreement to acquire Koligo Therapeutics)
  • SOHU +15.3% (Sohu.com subsidiary Sogou (SOGO) enter merger agreement with Tencent (TCEHY))
  • SOGO +2.7% (Sohu.com subsidiary Sogou (SOGO) enter merger agreement with Tencent (TCEHY))
  • NBEV +2.4% (signed and closed a definitive agreement with Zachert Private Equity to sell its "Brands Within Reach" group and associated retail brands effectively immediately) . 

Other news:

  • GPMT +9.3% (declares dividend of $0.20/sh; provides business update)
  • WINT +7.7% (FDA has accepted its Investigational New Drug (IND) application for a Phase 2 clinical trial studying lyo lucinactant in COVID-19 associated lung injury and acute respiratory distress syndrome (ARDS) patients)
  • SMMT +6.6% (higher after Mahkam Zanganeh disclosed 7.8% active stake)
  • SRNE +5.5% (reports preclinical data for STI-1499 and STI-2020; demonstrated potent neutralizing activity against SARS-CoV-2 virus isolates)
  • BEDU +4.1% (announced that it entered into agreements to acquire 60% equity interests in Leti Camp Education)
  • AERI +4% (announces acceptance of its investigational new drug application for AR-15512 (TRPM8 Agonist) eye drop for dry eye disease)
  • DYN +3.9% (Citadel Advisors discloses 6.4% stake)
  • SALT +3.3% (to sell a Kamsarmax vessel)
  • DNLI +3.1% (BIIB discloses 11.16% stake in DNLI)
  • VER +2.9% (provides Sept rent collection update)
  • HTZ +2.5% (new CFO)
  • GALT +2.5% (volatility continues ahead of its Investor Call - scheduled for today at 4:00 p.m. EDT)
  • FCEL +2.5% (announces multiple project awards by the local Connecticut electric distribution companies, Eversource and United Illuminating, totaling 11.2 megawatts, as part of the state-sponsored Shared Clean Energy Facility program)
  • BBIO +2.4% (BridgeBio Pharma and affiliate Origin Biosciences announce FDA acceptance of NDA for fosdenopterin)
  • BLDP +2.2% (expands manufacturing capacity for membrane electrode assemblies)
  • SNOW +1.6% (Berkshire Hathaway discloses 15.2% stake; Altimeter Capital discloses 13.27% stake)
  • PRSC +1% (expands into Home Care Segment with accretive acquisition of Simplura Health Group for $575 mln)

Analyst comments:

  • HSY +2.5% (upgraded to Outperform from Market Perform at BMO Capital)
  • PK +2.4% (upgraded to Buy from Underperform at BofA Securities)
  • RH +1.9% (upgraded to Outperform from Market Perform at Cowen)
  • D +1.2% (upgraded to Overweight from Neutral at JP Morgan)
  • SQ +1.2% (upgraded to Outperform from Peer Perform at Wolfe Research)
  • STAY +1.1% (upgraded to Buy from Neutral at BofA Securities)
  • EL +1% (upgraded to Neutral from Sell at Goldman)

>>> US Early premarket gappers

Early premarket gappers

  • Gapping up:
    • ORGS +16%, AERI +9.3%, GPMT +6.3%, SRNE +6.2%, BLDP +5.3%, BEDU +4.1%, DYN +3.9%, RLGT +3.6%, SALT +3.3%, VER +2.9%, PRSC +2.4%, SNOW +1.5%, INFO +1.2%, MAXN +0.8%, DNLI +0.7%
  • Gapping down:
    • BEAM -6.8%, PRTY -5.7%, UNFI -3.1%, ZTO -3%, TMDX -2.3%, HYMC -1.6%, TSLA -1.1%, ALT -0.8%, NBIX -0.7%