TheChek News Flow

A proposal by Louis Vuitton owner LVMH to buy Tiffany & Co. appears to be at a standstill.

Executives of the French luxury goods giant are bristling at calls by Wall Street analysts for LVMH to significantly sweeten its $120-a-share offer for the famous jeweler — claiming that the premium it has offered is actually far higher than the Street realizes, sources tell The Post.

That’s because LVMH made its $14.5 billion proposal more than a week before details of the deal were leaked to the press — and the stock rose significantly in that time. A top LVMH executive — who was only described to The Post as not LVMH CEO Bernard Arnault — flew to New York on Friday Oct. 18 to present the buyout plan to Tiffany CEO Alessandro Bogliolo at a private meeting, sources said.

That day, Tiffany’s stock closed at $88.49 a share. It ticked up over the next week, on triple the volume in some days, to close Friday Oct. 25 at $98.55. That weekend, details of the deal were reported by Bloomberg News.

Based on the Oct. 18 price, LVMH offered to buy Tiffany at a 36 percent premium — not the 22 percent premium suggest by the Oct. 25 closing price, sources said.

The stock has risen even further since then. After LVMH’s $120-a-share offer was confirmed on Monday, Tiffany shares closed at $129.72 a share as investors banked on the company, which also owns Dom Perignon champagne, upping the ante.

Arnault is likely only to increase his offer by a small amount,” a source said, referring to LVMH’s CEO, who is also the richest man in Europe. “They feel they do not need the asset,” this person added.

Tiffany didn’t immediately return a request for comment. But Edward Jones analyst Brian Yarbrough says any bid for Tiffany, known for its robin’s egg blue boxes, has to be north of $140 because Tiffany will argue its shares have more upside due to its turnaround efforts.

The company’s stock had been sagging as President Trump’s trade war with China has crimped spending by Chinese tourists at its Fifth Avenue flagship.

In 2014, LVMH walked away from buying luxury scarf and bag maker Hermes — despite accumulating a 23 percent stake in the company — after Hermes had filed suits against LVMH for allegedly building its stake in an illegal fashion.

An LVMH spokesperson declined comment.

John Elkann to become chairman of merged auto maker; official announcement expected Thursday

Breaking News

*Fiat Chrysler and Peugeot PUGOY -0.27% Owner PSA Agree to Merge -- Sources

*PSA Board Approves Merger, Fiat Chrysler Board Meeting Late Wednesday; Official Announcement Expected Thursday -- Sources

*Fiat Chrysler Chairman John Elkann to Be Chairman of Merged Company -- Sources

*Peugeot CEO Carlos Tavares to Be CEO of Merged Company -- Sources

*Peugeot to Have 6 Board Seats at Merged Company and Fiat Chrysler 5 -- Sources

*U.S. and French Governments Have Been Briefed on Deal -- Sources

*Peugeot to Pay €3 billion To Its Shareholders From Sale of Faurecia Stake -- Sources

(Article below will update.)

MILAN—John Elkann, chairman of Fiat Chrysler Automobiles FCAU +2.46% NV, learned a lesson from the Italian-American car maker’s longtime Chief Executive Sergio Marchionne, who died last year: Merge and grow, or fade into irrelevance.

Five months after a failed merger attempt with Renault SA, RNO -4.02% Mr. Elkann, the U.S.-born heir of the Agnelli dynasty that founded Fiat, is once more front and center as he personally negotiates with Peugeot CEO Carlos Tavares about a $46 billion merger that would create the world’s fourth-largest car maker.

On Wednesday, the two companies confirmed they are in talks that could lead to a merger, after The Wall Street Journal reported the discussions Tuesday. They didn’t provide further details. One of the possibilities being discussed is an all-stock merger of equals in which Mr. Elkann would become chairman of the new group and Mr. Tavares would be CEO, the Journal reported.

The two companies could announce a memorandum of understanding as soon as Wednesday, which would indicate they are in exclusive negotiations, according to people familiar with the matter. They plan to announce the deal on Thursday morning, provided there are no hiccups, according to a person close to the negotiations.

“We’re moving forward. The mind-set is positive,” the person said.

Both car makers have significant market shares in Europe providing the opportunity for cost cutting. But the management of a combined company would face the same challenge that European auto executives have stared down for decades: how to reduce production capacity in a continent where factory jobs are particularly politically sensitive. Fiat Chrysler’s excess production capacity in Europe was an issue Mr. Marchionne could never solve. While Italian labor unions have been weakened over the years, including in their battles with Mr. Marchionne, they still hold sway. On Wednesday, a union leader said any deal would have to guarantee “full employment and full use of Italian factories.”

The French state, which owns 12.2% of PSA Group, is following the discussions with “close attention and an open mind,” a finance ministry official said Wednesday.

“These discussions consecrate the turnaround of PSA, which was supported by the state,” the official said.

The French government would be vigilant in maintaining the industrial footprint and governance of the combined group, the official said, as well as the company’s participation in a European project to develop the next generation of car batteries.

The Italian government is following the talks, said Industry Minister Stefano Patuanelli. It doesn’t have a stake in Fiat Chrysler, but it has often played a role in shaping the company’s strategic moves.

Fiat Chrysler and France’s Peugeot had already discussed a potential merger earlier this year, and many of the specifics were hashed out at the time, according to people familiar with the discussions. Those talks were shelved in May when Fiat Chrysler sought a deal with Renault instead. But the deal was shelved at the 11th hour after Mr. Elkann failed to get the full backing of the French government and Renault’s alliance partner Nissan Motor Co.

Peugeot and Mr. Elkann’s family holding company Exor NV, which owns 29% of Fiat Chrysler, have scheduled board meetings for later Wednesday, according to people familiar with the plans. The companies haven’t confirmed the meetings. Fiat Chrysler will also hold a board meeting later Wednesday if the Peugeot board gives a green light for the negotiations to proceed, according to a person familiar with the situation.

Mr. Elkann hired Mr. Marchionne as Fiat’s CEO in 2004 when the company was losing close to €1 million ($1.1 million) a day and shedding market share as its small cars fell out of favor. Mr. Marchionne nursed Fiat back to health, in part by engineering a takeover of bankrupt Chrysler in 2009. He focused on expanding the appeal of Jeep sport-utility vehicles and Ram trucks, which now account for the majority of Fiat Chrysler’s profit, helping to offset the struggling Fiat brand.

Until Mr. Marchionne’s death, Mr. Elkann was largely in the shadow of his larger-than-life CEO. Mr. Marchionne was the toast of the car industry thanks to his frankness on a host of topics, including the need for industry consolidation. In 2015, Mr. Marchionne pursued a deal with General Motors Co. After several advances were rebuffed, he went public with a presentation that set out his detailed arguments for why the industry needed to consolidate, including the high costs of developing technology for electric vehicles and autonomous driving.

Mr. Elkann preferred to concentrate on diversifying Exor’s holdings away from the car sector, in a plan that was long in the making with input from Mr. Marchionne, who was an Exor board member. Mr. Elkann’s biggest move came in 2015 when he bought reinsurance company PartnerRe. He was often directly involved in the contentious negotiations with PartnerRe that culminated in a hostile takeover of the company by Exor.

The collapse of the Renault deal in June could prove costly for Mr. Elkann and his family. Since those failed talks, Peugeot’s stock has risen sharply, and the French company has surpassed Fiat Chrysler in market value.

To ensure an eventual deal between Peugeot and Fiat Chrysler is structured as a merger of equals, a cash component might be included as part of the share exchange to compensate for the difference in the two companies’ market values, according to a person familiar with the matter.

Before news of the latest talks leaked, Fiat Chrysler had a market capitalization of about €18.5 billion and Peugeot €22.5 billion. Early Wednesday, Fiat Chrysler’s shares were up 9.7% and Peugeot’s 5.7%. Renault stock was down 3.4%.

Potentially complicating merger negotiations, Fiat Chrysler is in the middle of contract talks with the North American labor union United Automobile Workers. However, Peugeot has no presence in the U.S. so the merger plan is unlikely to threaten jobs there.

Mr. Elkann had long favored the Renault deal and continued to hold out hope for that merger to be revived. But some analysts argue that Peugeot is actually the better match. The two companies are complementary in most markets and already have several joint ventures, including one to produce commercial vehicles. While Fiat Chrysler has a large business in Brazil, the French company has concentrated its South American strategy on Argentina.

Together, the car makers would have a market share of about 23% in Europe, just behind Volkswagen AG .

Industrial group’s winning business approach is studied for inspiration

What is Sweden’s most valuable company? It’s not Ikea or Nordea (both have headquarters outside the Scandinavian country now), nor Hennes & Mauritz or Ericsson (both former holders).

Instead, the business with the highest market capitalisation listed in Stockholm is the seemingly unremarkable Atlas Copco, valued at SKr400bn ($41bn).

The industrial group makes unsexy products such as compressors, vacuums and power tools for industries such as the semiconductor and automotive sectors.

But the secrets behind its success have made Atlas Copco sexy, with its managers in demand at other industrial groups and its business approach studied for inspiration.

Mats Rahmstrom, Atlas Copco’s chief executive, is typically low-key on what his role entails: “What I focus on is a bit on the customer, and a bit on the product. It’s a little bit back to basics . . . it’s a little bit grinding away with small decisions each day.”

At the core of what makes Atlas Copco tick is a commitment to decentralisation. Its headquarters are lean with most decisions taken within the divisions. Every manager has their own profit and loss account and is measured against it.

Mr Rahmstrom described it as the company’s competitive edge — he said products, processes, and so on could be copied but that people could not. “If you took a centralised organisation and say we are going to be decentralised, everybody would be a bit lost,” he said.

The chief executive was aware that there was a flipside to a decentralised approach. He admitted Atlas Copco could extract more synergies by being more centralised. That would perhaps fit in with the classic Swedish way of doing things where a consensus is gradually built up and a solution is found that (almost) everybody is happy with.

“We decide more for speed and trust than financial synergies,” Mr Rahmstrom said, adding that “it’s easy to say, it’s not so easy to deliver on”.

Atlas Copco’s share price shows that investors have faith: its stock has risen by nearly two-thirds this year and is up sixfold since the 2008-09 financial crisis. The group is a favourite of the Wallenberg family, whose investment vehicle is the largest shareholder, controlling almost a quarter of the voting shares; when the three cousins in the fifth generation of the Wallenbergs were interviewed by the Financial Times they chose the mine under Atlas Copco’s headquarters for the photo shoot.

“Atlas Copco is one of the crown jewels of the Nordics. They have a special way of behaving, one that is always looking for value,” said the head of one of the region’s leading investors. As an example, he pointed to the decision to spin off their mining division — Epiroc — last year despite the fact it was the most visible part of the business.

Inside Sweden, the company is known as the leading finishing school for executives, akin to the role General Electric once played in the US. The future chief executive of ABB, the chairman of Electrolux, chief and chair of door-and lockmaker Assa Abloy, and the chief executive of Sandvik all hail from Atlas Copco.

Mr Rahmstrom noted that 85 per cent of the group’s leaders were recruited internally with “most in my team here for 10-20-30 years”. He said there was no succession planning at Atlas Copco, instead there was an internal job market with budding leaders who received coaching on the gaps in their CV.

With an eye on his ice-hockey playing days when he noted how the most skilled teams could be beaten, he said: “People with the best talent tend not to go up the Atlas Copco hierarchy; people with talent and passion tend to go up.”

Asked if he was worried about being near the top of the industrial cycle — after a third quarter Mr Rahmstrom dubbed Atlas Copco’s “best ever” — he replied that the company did not get too concerned about forecasting. Instead, it ran scenarios each year on how it would deal with rises or falls of 10 and 20 per cent in annual sales. “It’s a much better investment than trying to predict when things are going to happen,” he said.

Atlas Copco is known for its light balance sheet — the group buys in about three-quarters of components but ensures that things it deems crucial such as product design and final assembly are kept in-house. “It’s important to select the things we want to do but it’s even more important the things we don’t want to do,” Mr Rahmstrom said.

As with the Nordic model, Norway’s oil fund, Finnish education or a plethora of other Nordic ideas, the secrets to Atlas Copco’s success sound simple in theory but difficult to replicate in practice.

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