FT : LVMH lawsuit calls Tiffany’s prospects ‘dismal’

LVMH lawsuit calls Tiffany’s prospects ‘dismal’
French group sets out legal arguments for walking away from $16.6bn deal for luxury jeweller

A “catastrophic” performance since the outbreak of coronavirus has left Tiffany with “dismal” prospects for the future, according to the company that until recently wanted to buy the luxury US jeweller for $16.6bn.

LVMH, the conglomerate led by the French tycoon Bernard Arnault, made the stinging attack on Tiffany and its management in a lawsuit launched late on Monday, in which it is seeking a judge’s blessing to walk away from the deal.

In a 97-page court filing in the US state of Delaware, LVMH argues that Tiffany’s decisions to slash capital and marketing investments, take on additional debt and pay cash dividends despite the pandemic means that it is a different business than the one it had agreed to buy.

The filing is the latest salvo in the legal battle that will determine the fate of a deal struck last year to make the New York-based jeweller part of Mr Arnault’s empire that spans brands including Louis Vuitton, Christian Dior and Bulgari. Tiffany has already sued LVMH to try to hold it to the deal.

An expedited trial has been scheduled for early January, although the two companies could also seek a negotiated solution before then. 

LVMH said in its filing that Tiffany was “ill-suited for the challenges ahead” and that “its performance has been catastrophic and its prospects remain dismal” after posting a loss of $45m in the first half.

“Tiffany’s performance will continue to be poor . . . [and its] projections for the fourth quarter of 2020 are dubious given the ongoing and substantial impact of the pandemic, which continues to hamper Tiffany’s sales and shows no signs of abating,” the luxury goods group said.

LVMH also accused Tiffany’s management of trying to force the deal through because its top executives stand to profit from the transaction being completed. LVMH said that Tiffany’s chief executive, Alessandro Bogliolo, would pocket about $44m, adding that “his golden parachute is equivalent to Tiffany’s losses in the first half of 2020”.

Delaware courts have only once allowed a buyer to walk away from an agreed-upon merger agreement, and have been highly sceptical of “material adverse effect” arguments in which suitors claim external events allow them to scrap a deal. That has left LVMH also seeking to argue that Tiffany’s management breached its obligations on running the business between the deal’s signing and closing. 

Tiffany has insisted that it acted in the best interest of shareholders.


As well as dramatically increasing the war of words between LVMH and Tiffany over the jeweller’s management, Monday’s filing also included a key legal argument from LVMH designed to persuade the Delaware court to invoke a material adverse effect: Tiffany did not include a pandemic in a list of catastrophic events specifically mentioned as risks that LVMH would have to bear.

Tiffany sought and received similar “carve-outs” for cyber attacks, protests in France and civil unrest in Hong Kong that disrupted retail operations, LVMH argued, showing that Tiffany and its lawyers understood the importance of such clauses in determining the circumstances in which LVMH would still have to complete the deal.

“Yet Tiffany did not obtain a carve-out for public health crises or pandemics,” it said. “Against this backdrop, the decision by two sophisticated parties, represented by sophisticated advisers, to omit a pandemic carve-out is telling. The pandemic has caused a material adverse effect that allows LVMH to terminate.”

LVMH has been manoeuvring behind the scenes for months to pressure Tiffany to accept a lower price after Mr Arnault became convinced that the $135-a-share price agreed in November made little sense given the darker outlook for luxury after the pandemic.

Tiffany has repeatedly refused to consider a price cut, saying the French group has to honour the original terms.

As the legal skirmishes continue, LVMH has faced a brewing backlash in France over whether it enlisted the French government’s help in the battle. When LVMH said earlier this month that it could not complete the Tiffany deal as planned, it blamed a letter it received from the French foreign ministry asking it to delay closing the transaction until after January 6 so as to help the country in an ongoing trade spat with the US. 

LVMH has repeatedly denied that it sought the letter, but said it believed it to be a legally binding order from France.

In questioning in the French parliament last week, however, foreign minister Jean-Yves Le Drian said he wrote the letter in response to a query from LVMH.

“My role is to apply, if necessary, the government’s opinion on assessments of a political nature on the management of major international events to come,” Mr Le Drian said. “This is the reason why I answered a question from the LVMH group, totally in my role.”

>>> US After Hours Summary: fairly quiet after hours; UNFI -4.3% f

After Hours Summary: fairly quiet after hours; UNFI -4.3% falls on earnings/CEO retirement; DNLI +9.2% higher as BIIB discloses stake

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: RLGT +9.8%

Companies trading higher in after hours in reaction to news: DNLI +9.2% (BIIB discloses 11.16% stake in DNLI), GPMT +6.6% (declares dividend of $0.20/sh; provides business update), DYN +2.8% (Citadel Advisors discloses 6.4% stake), SNOW +2.6% (Berkshire Hathaway discloses 15.2% stake; Altimeter Capital discloses 13.27% stake), ALT +2.4% (presents highlights of AdCOVID and T-COVID intranasal vaccine and therapeutic candidates), BLDP +2.2% (expands manufacturing capacity for membrane electrode assemblies), PFE +0.9% (FDA approves XELJANZ for active polyarticular course juvenile idiopathic arthritis), MAXN +0.7% (MAXN files patent lawsuit against CSIQ Solar Japan), PRTY +0.5% (stock offering), ESPR +0.4% (launches DTC campaign to accelerate awareness of NEXLETOL tablets), UBER +0.4% (evaluating potential purchase of Free Now, according to Bloomberg), VER +0.2% (provides Sept rent collection update), QDEL +0.1% (issues statement in support of more school testing)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: UNFI -4.3% (also CEO to retire)

Companies trading lower in after hours in reaction to news: BEAM -6.4% (files for 4.5 mln share offering), SALT -2.5% (to sell a Kamsarmax vessel), CSIQ -0.6% (MAXN files patent lawsuit against CSIQ Solar Japan), TSLA -0.5% (Elon Musk tweets that co will probably IPO Starlink, but only several years in the future), TMDX -0.2% (FDA has temporarily postponed meeting reviewing co's premarket approval application for OCS Heart), FCAU -0.2% (to settle charges that it made misleading disclosures -- SEC), NBIX -0.1% (to present new data on ONGENTYS), PBR -0.1% (to spend $6 bln to dismantle platforms, pipelines and wells, according to Reuters)

>>> US Close Dow +1.51% S7P +1.61% Nasdaq +1.87% Russell +2.40%

Closing Stock Market Summary: Stocks rise in broad-based advance

The S&P 500 rose 1.6% on Monday in a broad-based advance. The small-cap Russell 2000 (+2.4%) and S&P MidCap 400 (+2.4%) outperformed with 2.4% gains, followed by the Nasdaq Composite (+1.9%) and Dow Jones Industrial Average (+1.5%). 

All 11 sectors within the S&P 500 ended the day in positive territory, with energy (+2.3%), financials (+2.3%), consumer discretionary (+2.2%), and information technology (+1.9%) finishing atop the standings. The utilities sector (+0.3%) was today's laggard. 

Value/cyclical stocks had a nice advantage for most of the day, until the technology stocks narrowed the gap intraday. Apple (AAPL 114.96, +2.68, +2.4%), for instance, finished higher by 2.4% after being up just 0.5% in the morning. 

Analyst upgrades, M&A activity, and another positive vaccine update from Johnson & Johnson (JNJ 147.11, +1.45, +1.0%) were corporate-related drivers of sentiment for many cyclical stocks. Other positive factors were House Speaker Pelosi saying a stimulus bill is still possible and quarter-end rebalancing, which favored the financial and energy sectors. 

A separate viewpoint was rooted more in technical observation than news. The lack of volatility, and market-moving events, suggested today was a momentum trade from Friday, with performance aided by a recognition the S&P 500 and Dow had declined for four straight weeks. 

Notably, the S&P 500 closed below its 50-day moving average (3353) despite spending a healthy portion of the afternoon above the key technical level. 

U.S. Treasuries were stagnant during today's stock market gains. The 2-yr yield increased one basis point to 0.14%, and the 10-yr yield was unchanged at 0.66%. The U.S. Dollar Index declined 0.4% to 94.27. WTI crude futures rose 0.7%, or $0.29, to $40.54/bbl.

Investors did not receive any economic data on Monday. The Conference Board's Consumer Confidence Index for September, the S&P Case-Shiller Home Price Index for July, and the Advance August reports for Intl Trade in Goods, Retail Inventories, and Wholesale Inventories will be released on Tuesday. 

  • Nasdaq Composite +23.9% YTD
  • S&P 500 +3.7% YTD
  • Dow Jones Industrial Average -3.3% YTD
  • Russell 2000 -9.5% YTD

>>> US Close Dow -0.88% S&P -1.12% Nasdaq-1.07% Russell -0.38%

Closing Stock Market Summary

The S&P 500 fell 1.1% on this quadruple-witching expiration Friday, as losses spread out from technology stocks to all 11 S&P 500 sectors. The Nasdaq Composite also declined 1.1%, followed by the Dow Jones Industrial Average (-0.9%) and Russell 2000 (-0.4%).    

At first, losses were concentrated in the mega-cap/growth/momentum stocks in a continuation trade from the past few sessions. Options-expiration related activity was a likely factor that exacerbated the downwards momentum, but the most obvious factor was the U.S. prohibiting downloads of TikTok and WeChat after Sunday.  

Many viewed the download ban as a negotiation tactic to get a revised deal between Oracle (ORCL 59.75, -0.43, -0.7%) and TikTok that better protects U.S. data. Tencent's WeChat called the decision "unfortunate" and said it will continue to discuss solutions with the U.S., but there were still concerns about potential retaliation against U.S. technology companies. 

The information technology sector (-1.7%) exerted influential weakness as a result, and an early rotational trade into cyclical/value stocks lost some stream as tech stocks accelerated losses. The materials (-1.7%), utilities (-1.8%), and real estate (-2.0%) sectors were other laggards, while the health care (-0.1%) and financials (-0.2%) sectors outperformed on a relative basis. 

The market did close off session lows, thanks to a buy-the-dip mindset in the afternoon, but it's worth noting that the S&P 500 closed below its 50-day moving average (3343). 

Tesla (TSLA 442.15, +18.72, +4.4%) was a notable exception to the negative trend, rising 4.4% after Piper Sandler raised its price target on the stock to $515 from $480 ahead of its Battery Day event next week. 

U.S. Treasuries finished little changed in a tight-ranged session. The 2-yr yield remained unchanged at 0.13%, and the 10-yr yield increased one basis point to 0.69%. The U.S. Dollar Index was flat at 92.95. WTI crude futures increased 0.2% to $41.09/bbl, bringing its weekly gain to 10%.

Reviewing Friday's economic data:

  • The final University of Michigan Index of Consumer Sentiment for August ticked up to 74.1 (consensus 72.8) from the preliminary reading of 72.8. The final reading for July was 72.5.
    • The key takeaway from the report is that consumer sentiment has been slow to rebound and that the incremental improvement seen has been based simply on the view that things couldn't get worse than they were at the depths of the shutdown period.
  • The Conference Board's Leading Economic Index (LEI) increased 1.2% in August (consensus 1.4%) following an upwardly revised 2.0% increase (from 1.4%) in July. The increase for August represents the fourth straight month the index has been positive after declining 7.4% in March and 6.3% in April.
    • The key takeaway from the report is the understanding that, despite four straight increases, more repair work is necessary. At 106.5, the index is still 4.7% below the level seen in February.
  • The current account deficit for the second quarter totaled $170.5 billion ( consensus -$146.3 billion). The first quarter deficit was revised to $111.5 billion from $104.2 billion.

Investors will not receive any notable economic data on Monday.

  • Nasdaq Composite +20.3% YTD
  • S&P 500 +2.8% YTD
  • Dow Jones Industrial Average -3.1% YTD
  • Russell 2000 -7.9% YTD

WSJ : Huang’s Law Is the New Moore’s Law, and Explains Why Nvidia Wants Arm

Huang’s Law Is the New Moore’s Law, and Explains Why Nvidia Wants Arm
The rule that the same dollar buys twice the computing power every 18 months is no longer true, but a new law—which we named for the CEO of Nvidia, the company now most emblematic of commercial AI—is in full effect

During modern computing’s first epoch, one trend reigned supreme: Moore’s Law.

Actually a prediction by Intel Corp. INTC -0.85% co-founder Gordon Moore rather than any sort of physical law, Moore’s Law held that the number of transistors on a chip doubles roughly every two years. It also meant that performance of those chips—and the computers they powered—increased by a substantial amount on roughly the same timetable. This formed the industry’s core, the glowing crucible from which sprang trillion-dollar technologies that upended almost every aspect of our day-to-day existence.

As chip makers have reached the limits of atomic-scale circuitry and the physics of electrons, Moore’s law has slowed, and some say it’s over. But a different law, potentially no less consequential for computing’s next half century, has arisen.

I call it Huang’s Law, after Nvidia Corp. chief executive and co-founder Jensen Huang. It describes how the silicon chips that power artificial intelligence more than double in performance every two years. While the increase can be attributed to both hardware and software, its steady progress makes it a unique enabler of everything from autonomous cars, trucks and ships to the face, voice and object recognition in our personal gadgets.


Between November 2012 and this May, performance of Nvidia’s chips increased 317 times for an important class of AI calculations, says Bill Dally, chief scientist and senior vice president of research at Nvidia. On average, in other words, the performance of these chips more than doubled every year, a rate of progress that makes Moore’s Law pale in comparison.

Nvidia’s specialty has long been graphics processing units, or GPUs, which operate efficiently when there are many independent tasks to be done simultaneously. Central processing units, or CPUs, like the kind that Intel specializes in, are on the other hand much less efficient but better at executing a single, serial task very quickly. You can’t chop up every computing process so that it can be efficiently handled by a GPU, but for the ones you can—including many AI applications—you can perform it many times as fast while expending the same power.

Intel was a primary driver of Moore’s Law, but it was hardly the only one. Perpetuating it required tens of thousands of engineers and billions of dollars in investment across hundreds of companies around the globe. Similarly, Nvidia isn’t alone in driving Huang’s Law—and in fact its own type of AI processing might, in some applications, be losing its appeal. That’s probably a major reason it has moved to acquire chip architect Arm Holdings this month, another company key to ongoing improvement in the speed of AI, for $40 billion.

The pace of improvement in AI-specific hardware will make possible a range of applications both utopian and dystopian, from the end of automobile accidents to ubiquitous surveillance. But it’s also enabling, right now, a less fantastical application with huge implications for how we shop and the fate of millions of retail jobs: cashierless checkout.

San Francisco-based tech company Standard recently announced a deal with Circle K to turn some of its stores into “grab and go” experiences in the mold of Amazon.com Inc.’s Amazon Go stores. The three-year-old startup installs cameras throughout stores, then routes video from them to Nvidia-powered systems in the back, which perform tens of trillions of calculations a second. As shoppers grab objects off store shelves, the system tallies it all, and bills them through their mobile devices as they walk out.

For perspective, a system performing this many operations a second is faster than the most powerful supercomputer in the world was as recently as 2012, at least at AI inference tasks.

“Honestly we could do nothing and just wait and Nvidia will drop our prices every year,” says Jordan Fisher, Standard’s founder and CEO.

Another category that Huang’s Law affects is autonomous vehicles. At San Diego-based TuSimple, a rapidly expanding autonomous-trucking startup, the challenge is making a self-driving system that can fit the power and space limitations of a diesel-powered semi-trailer truck. On a typical TuSimple vehicle, that means cramming the entire system, which can’t draw more than 5 kilowatts, into an air-cooled cabinet in the sleeper cab.

Given such power constraints, what matters most is performance per watt. TuSimple is seeing performance double every year on its Nvidia-powered systems, says Xiaodi Hou, the company’s co-founder and chief technology officer.

Similar boosts in performance have been occurring since the mid-2000s in a very different area of AI: our mobile phones.

In 2017, Apple introduced the iPhone 8, which included its Neural Engine. Apple designed the chip specifically to run machine-learning tasks, which are important to many kinds of AI. (Its chip-manufacturing partner is Taiwan Semiconductor Manufacturing Co.)

Apple’s decision to make the chip accessible to any app on the phone—as well as the introduction of comparable chips and software on Android phones—allowed for new kinds of AI businesses, says Bruno Fernandez-Ruiz, co-founder and chief technology officer of Nexar, a company that makes AI-powered dashboard cameras for cars. By processing on users’ phones streams of video captured by dashboard cameras, Nexar’s technology can alert drivers to imminent hazards.

Uses of mobile AI are multiplying, in phones and smart devices ranging from dishwashers to door locks to lightbulbs, as well as the millions of sensors making their way to cities, factories and industrial facilities. And chip designer Arm Holdings—whose patents Apple, among many tech companies large and small, licenses for its iPhone chips—is at the center of this revolution.

Over the last three to five years, machine-learning networks have been increasing by orders of magnitude in efficiency, says Dennis Laudick, vice president of marketing in Arm’s machine-learning group. “Now it’s more about making things work in a smaller and smaller environment,” he adds. Arm’s smallest and most energy-sipping chips, tiny enough to be powered by a watch battery, can now enable cameras to recognize objects in real time.

This movement of AI processing from the cloud to the “edge”—that is, on the devices themselves—explains Nvidia’s desire to buy Arm, says Nexar co-founder and CEO Eran Shir. Nvidia has a near monopoly on AI processing in the cloud. But where two years ago, Nexar performed 40% of its data processing in the cloud, Arm-based chips have enabled it to do much more of that processing in mobile devices, and faster, since it doesn’t have to be transmitted over the internet first. Today, the cloud is doing only 15% of the work. In addition, some functions, like a vision-based parking assistant, were not even possible until recently, when the chips in phones became much more capable.

Experts agree that the phenomenon I’ve labeled Huang’s Law is advancing at a blistering pace. However, its exact cadence can be difficult to nail down. The nonprofit Open AI says that, based on a classic AI image-recognition test, performance doubles roughly every year and a half. But it’s been a challenge even agreeing on the definition of “performance.” A consortium of researchers from Google, Baidu, Harvard, Stanford and practically every other major tech company are collaborating on an effort to better and more objectively measure it.

Another caveat for Huang’s Law is that it describes processing power that can’t be thrown at every application. Even in a stereotypically AI-centric task like autonomous driving, most of the code the system is running requires the CPU, says TuSimple’s Mr. Hou. Dr. Dally of Nvidia acknowledges this problem, and says that when engineers radically speed up one part of a calculation, whatever remains that can’t be sped up naturally becomes the bottleneck.

It’s also possible that, like Moore’s Law before it, Huang’s Law will run out of steam. That could happen within a decade, says Steve Roddy, vice president of product marketing in Arm’s machine-learning group. But it could enable much in that relatively short time, from driverless cars to factories and homes that sense and respond to their environments.

FT : HMRC set to gain new powers to force disclosure of assets

HMRC set to gain new powers to force disclosure of assets
Finance bill measures would allow tax authority to bypass tribunals

HM Revenue & Customs is set to be handed new powers allowing it to force financial institutions to pass on information about people’s assets without a court order or the individual’s approval.

Banks, investment advisers, fund managers, credit unions, insurance companies and credit card issuers will be required to divulge information about their customers if served with a “financial institution notice” by HMRC, under measures contained in the next finance bill.

Currently HMRC can only ask a third party to provide information about an individual’s financial affairs if the person agrees or the tax tribunal approves the request.

The government wants to introduce the measures, which could be in force next year, to make it quicker and easier for HMRC to share information with foreign tax authorities, as part of a global effort to crack down on evasion and tax avoidance.

But the move has alarmed tax experts and the finance industry, who warn the plans will lead to an increase in requests by the tax authority.

“The tax tribunal [is] a crucial safeguard to ensure proper scrutiny and not unfettered access to personal financial matters,” said Hayley Ives, director of tax resolutions at Crowe, an advisory firm. “It is therefore a worrying development that HMRC might opt to bypass this system . . . in some instances, without the taxpayer knowing.”

If HMRC overstepped the mark, the taxpayer would be reliant on the financial institution arguing on their behalf that the information was not reasonably required, Ms Ives said.

The Chartered Institute of Taxation said it was “concerned about the loss of independent tribunal oversight, particularly in cases which involve requests for information about UK taxpayers”.

Similar concerns were voiced by UK Finance, the financial services trade body, which said the measures signified a “watering down [of] safeguards”.

HMRC said it was important for it to be able to obtain the information needed to tackle tax evasion and avoidance “in an appropriate and effective way”.

“The new notice will contain numerous safeguards for taxpayers, in line with practice in all other G20 countries, and the power can only be used in specific circumstances where the information is reasonably required for the purposes of checking a taxpayer’s tax position,” the tax authority said.

If the finance bill is passed in its current form, the new measures will allow HMRC to issue notices to financial institutions for the purposes of checking individuals’ assets or the collection of tax debts.

The wide range of data which could be requested has caused some to worry that HMRC may use the notices to fish for information about people who had done nothing wrong or made innocent mistakes. In recent years, the Lords Economics Affairs Committee has criticised the Treasury for eroding taxpayer protections by giving HMRC too many powers.

“We would support the general principle that everyone should pay the tax that is due and HMRC should have the powers to collect the tax that is owed. But it needs to be done in a balanced and proportionate way, including for taxpayers who are unrepresented [by advisers] and make innocent mistakes,” said Tom Henderson, technical officer at the Low Incomes Tax Reform Group. “You could make the argument that these changes swing the pendulum too far in favour of HMRC’s powers.”

Sarah Saunders, personal tax manager at RSM, an accountancy firm, added: “If the Revenue becomes too powerful people will just resent them so much and start not obeying.”

However, others said the new measures were proportionate. “The UK is the only G20 country that requires the approval of a tribunal, or the consent of the taxpayer, before a third party notice can be issued,” said Jake Landman, legal director at law firm Pinsent Mason. “Looking at things from that perspective, changes to the notice rules are arguably justified.”

Barrons : U.K. Tech Giant Aveva Bets on Data Management by Buying OSIsoft. That

U.K. Tech Giant Aveva Bets on Data Management by Buying OSIsoft. That Should Power the Stock.

Attempting a big acquisition can be a risky bet during stable times. It’s even more challenging during a pandemic.

Yet Aveva Group (ticker: AV:U.K.) did exactly that in August, when it bought OSlsoft, the U.S. industrial software maker that is 45% owned by Japanese tech investor SoftBank, for $5 billion including debt.

The combined group, which will have annual revenue of 1.2 billion pounds sterling ($1.5 billion), with adjusted earnings before interest and taxes estimated to be about £330 million, will transform U.K.-listed Aveva into a global industrial software player. That gives the stock room to grow.

One of the U.K.’s oldest technology companies, Aveva began life at the University of Cambridge as a government-funded research institute, producing software used to design and manage oil rigs, ships, and chemical plants. It listed on the London Stock Exchange in 1996, and five years later changed its name to Aveva.

The company has expanded through a series of deals, including a £3 billion merger with the industrial-software business of France’s Schneider Electric in 2018, and now commands a market valuation of almost £8 billion. “We think an uplift in market cap should make the equity more attractive to non-U.K. investors,” analysts at Bank of America Merrill Lynch said.

Demand for Aveva’s software—which is used, for example, by New Belgium Brewing to increase packaging production capacity and decrease downtime of the plant—has been robust despite coronavirus-related disruption. Aveva reported an 8.8% rise in revenue to £833.8 million in the 12 months to the end of March 2020, and analysts expect the company to reach revenue of £929 million in the year ending March 2023, according to the FactSet consensus.

Buying OSIsoft gives Aveva access to the San Leandro, Calif.–based company’s PI Software platform to help customers manage their data and data-analytics software to boost the performance of big industrial plants and processes.

“As we considered the acquisition of OSIsoft, we were mindful of the superb fit of our combined businesses and effects the transaction would have in strengthening our leading role in accelerating the digitalization of the industrial world,” says Craig Hayman , chief executive officer of Aveva.

Shareholders seem to like the strategic rationale of the deal. Aveva’s stock has risen 17% since it was announced on Aug. 25, even though a rights issue will provide the bulk of the acquisition financing. Shares are up about 4% to 4,842 pence ($62.50).

The shares trade at a forward consensus price/earning ratio of 43.9 times, according to FactSet, which is high compared to where it has tended to trade in recent years. “However, Aveva’s peer group is similarly richly valued,” analysts at UBS say. These include Autodesk (ADSK) and ESI Group (ESI.France).

UBS sees potential for increased cross-selling to customers of both companies, including Johnson & Johnson, ExxonMobil, Microsoft, and Duke Energy. Meanwhile, the OSIsoft acquisition will reduce Aveva’s exposure to oil and gas—its second-largest market—from 40% to 35%, according to UBS.

Aveva is planning to finance the bulk of the deal with a $3.5 billion rights issue set to be launched in the next few weeks, as well as $900 million from existing cash and some new debt. It will also issue $600 million of new shares to OSIsoft’s largest shareholder, a holding company owned by the company’s founder, J. Patrick Kennedy. Shareholders can take comfort in the fact that Schneider Electric, which owns 60% of Aveva’s stock, has committed to take up its portion of the cash call.

“We are very comfortable with the level of debt to support the acquisition of OSIsoft, which amounts to $900 million and under two-times pro forma Ebitda (earnings before interest, taxes, depreciation, and amortization). The servicing and paying down of that debt will be based on the strong recurring revenue streams, margin, and cash-generation profiles of the combined businesses,” Hayman says.

Aveva hasn’t given a target for cost savings yet, but expects them to be “material,” and the group’s track record on M&A bodes well. Its integration of Schneider Electric went smoothly, even though Aveva had to extract the business out of the French parent company, which was more complicated than buying a whole company, as with OSIsoft. At the time of the deal, it had forecast synergies of £25 million over two and half years and eventually achieved synergies of £33 million.

“While significant upside probably hinges on delivering revenue synergies, management has done this once before and the industry backdrop—powered by Industry 4.0 and IIoT [Industrial Internet of Things]—is arguably more supportive than ever,” analysts at Bank of America Merrill Lynch noted.

Aveva looks set to repeat the trick with OSIsoft, with investors reaping the rewards.