Early premarket gappers
- Gapping up:
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- Gapping down:
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The $16bn question: is LVMH’s Arnault getting cold feet?
His latest target Tiffany & Co is convinced that he’s up to his usual mindgames
Shenanigans by the ‘wolf in cashmere’
His advisers are either out of the loop or have been told to keep their mouths shut. Investors and hedge funds are scrambling for hints of his tactics. And the target company he agreed to buy for $16.2bn late last year is convinced that he’s up to his usual tricks.
We are, of course, talking about Bernard Arnault, Europe’s richest man, pictured below. For the second time this week, the shenanigans from a man nicknamed the “wolf in cashmere” are front and centre in the dealmaking business and the DD briefing.
On Tuesday we covered the story of how a handful of French billionaires, including Arnault, rushed to the defence of debt-ladened Arnaud Lagardère and helped him fend off an activist investor at his media group Lagardère.
Later on Tuesday attention shifted to LVMH’s planned takeover of Tiffany & Co, the US jewellery company that Arnault agreed to buy in November — before the outbreak of the coronavirus pandemic.
Now the world looks far different. DD understands that Arnault may be harbouring specific frustrations: during the coronavirus crisis, Tiffany has continued to pay its dividend as well as pay its rents, examples of cash coming out of the business that Arnault would rather preserve.
It’s only reasonable that a master dealmaker such as Arnault, who some thought had overpaid for Tiffany at the time, would look to reduce his $135-a-share purchase price.
There’s just one problem: Arnault is locked into an iron-tight merger agreement that doesn’t even give him the chance to walk away from the deal by paying a break-fee.
LVMH’s only way out of the deal runs through the Delaware Chancery Court, where it would need to prove that the target has breached the merger agreement.
Not only would that be a difficult thing to do, based on multiple sources who spoke to DD, it would also likely force Arnault to take the stand and be probed about his history. For a man whose career is built on crafty dealmaking, that’s probably not a position he’d like to find himself in.
So what do you do when you don’t have much leverage in a negotiation, but you want to fight your corner? You create leverage.
And that is what people following the transaction closely say Arnault and LVMH are doing. First with a very specific well-timed story in trade publication WWD about concerns over the deal among its board of directors and now with a completely hazy statement released by LVMH.
Sources tell DD that the net effect of the drip, drip, drip is to sow doubts among Tiffany shareholders that the deal is looking wobbly. Those investors, including many hedge funds who are arbitraging the spread between Tiffany’s current share price and the $135 offer, would then apply pressure on the jeweller’s board to ensure a deal is done even if it means accepting a reduced price.
If that is the strategy, it seems to be working. So far Tiffany shares have dropped about 10 per cent since Monday as they closed at $114 each on Thursday. LVMH could have used its statement on Thursday to restore confidence in Tiffany’s share price, but it chose not to.
Most sophisticated hedge funds following this trade, however, have come to the same conclusions as DD about what is going on. The only problem is that those investors are a notoriously fickle bunch . . . and Arnault is a master of dealmaking mindgames.
We expect the noise to pick up from here. The wolf is on the prowl and he doesn’t like to lose. “I always liked being number one,” he told the FT’s Harriet Agnew over lunch last year.
Investors pump $22.5bn into US bond funds
Cash infusion over past week is the highest level since at least 2007
Investors pumped $22.5bn into US bond funds in the week to Wednesday as they shifted tens of billions of dollars out of haven money market accounts to riskier but higher paying investments.
The cash infusion into US bond mutual and exchange traded funds was the most since at least 2007, when the data provider EPFR began tracking the figures.
Investment grade corporate bond funds counted $5.5bn of inflows in the week, while funds that buy investment grade corporate bonds and government debt received $7.5bn in inflows.
Junk bond funds attracted $8.5bn, falling just short of the weekly record set in April.
“We’re seeing a major reversal of the extreme risk-off behaviour we saw a few months ago,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors. The activity has been helped by the big rally in US stocks since March, he said. “Usually bonds lead equities but in this case I think equities are leading bonds.”
Investors pumped $22.5bn into US bond funds in the week to Wednesday as they shifted tens of billions of dollars out of haven money market accounts to riskier but higher paying investments.
The cash infusion into US bond mutual and exchange traded funds was the most since at least 2007, when the data provider EPFR began tracking the figures.
Investment grade corporate bond funds counted $5.5bn of inflows in the week, while funds that buy investment grade corporate bonds and government debt received $7.5bn in inflows.
Junk bond funds attracted $8.5bn, falling just short of the weekly record set in April.
“We’re seeing a major reversal of the extreme risk-off behaviour we saw a few months ago,” said Max Gokhman, head of asset allocation for Pacific Life Fund Advisors. The activity has been helped by the big rally in US stocks since March, he said. “Usually bonds lead equities but in this case I think equities are leading bonds.”
Investors, including Ms Erickson, pointed to the Federal Reserve’s response to the financial market turmoil. The US central bank has started buying exchange traded funds that invest in corporate bonds and is poised to launch a facility that will buy debt from companies directly.
Just the announcement of its moves into credit was enough to put an end to a painful sell-off in corporate bond markets. Yields on investment grade corporate debt, which fall when bond prices rise, have dropped more than 2 percentage points from a March high, according to Ice Data Services.
“Flows are migrating toward areas of Fed support, hence demand for investment grade corporates and high-yield bonds,” said Steven Oh, the global head of credit and fixed income at PineBridge. “Investors are ignoring near-term economic conditions and optimistically looking forward to an expected recovery, along with confidence in the Fed’s willingness to backstop downside risks.”
The inflows also come during a rush of corporate bond issuance that has surpassed $1tn as companies raise capital to help them through the drop in economic activity caused by the shutdowns to quell the spread of Covid-19.
On Monday, Amazon was able to secure the lowest cost of borrowing on record for US corporate debt. The online retailing giant issued $10bn of bonds with a carrying interest rate of just 0.4 per cent in a deal that was three times oversubscribed.