WWD : Bernard Arnault Dismisses Rumor of LVMH Bid for Chanel as ‘Fake News’

Bernard Arnault Dismisses Rumor of LVMH Bid for Chanel as ‘Fake News’
The French luxury titan said there has been no contact with the Wertheimer family, which owns Chanel.

PARIS — Following its failed bid for Hermès, could LVMH Moët Hennessy Louis Vuitton be angling to snap up another independent competitor, Chanel?

Not so, said Bernard Arnault, chairman and chief executive officer of LVMH, at the company’s annual general meeting in Paris on Thursday. The luxury titan, flanked by members of the group’s executive committee onstage, was responding to a query during the meeting’s question and answer session.

Asked to comment on rumors that a senior LVMH executive had met with members of the Wertheimer family, which controls Chanel, to explore an acquisition, Arnault said: “Chanel is an outstanding business, but we are not in contact with them. I don’t know who told you that, but in my opinion, it’s fake news. There’s a lot of that around, you know.”


LVMH surprised markets in October 2010 when it revealed it had amassed a 17.1 percent stake in Hermès via cash-settled equity swaps that allowed it to circumvent the usual regulations requiring firms to declare share purchases. Over the next few years, it raised its stake to 23.2 percent.

The share acquisition triggered an investigation by France’s stock market regulator and a legal battle between the two companies, which eventually signed a truce in 2014 that saw LVMH distribute its Hermès stake to shareholders.

Privately held Chanel is the object of regular speculation, although Alain and Gérard Wertheimer, the reclusive billionaire brothers who own the maker of 2.55 handbags and tweed jackets, have given no public indication that the brand might be for sale.

WSJ : Senate Judiciary Committee to Take Up Bill Protecting Mueller

Senate Judiciary Committee to Take Up Bill Protecting Mueller
Bill would mark the first major congressional action aimed at protecting the special counsel and the probe into Russian election meddling

WASHINGTON—The Republican chairman of the Senate Judiciary Committee said Wednesday his panel would take up a bill to protect special counsel Robert Mueller from being dismissed without cause, the first major congressional action designed to protect the integrity of the criminal investigation into Russian activity during the 2016 election.

A spokesman for Sen. Chuck Grassley, an Iowa Republican, said that he would put a bipartisan bill that would prevent Mr. Mueller from being dismissed without cause on the committee’s agenda. It is expected to be considered, debated and amended next week, which would set up a vote on the measure on April 26.

Mr. Grassley’s move was unexpected and comes as President Donald Trump has voiced increasing anger at the direction of the investigation. Earlier this week, Federal Bureau of Investigation agents searched the office, home and hotel room of Mr. Trump’s longtime lawyer Michael Cohen and seized records including those related to a payment to a former adult-film actress.

Members of Congress in both parties have grown increasingly alarmed that Mr. Trump would take action against Mr. Mueller, whose investigation he has repeatedly called a “witch hunt,” asserting there was no collusion between his campaign and Russia during the 2016 race. Russia has denied meddling in the election.

White House press secretary Sarah Huckabee Sanders said this week that Mr. Trump “certainly believes he has the power” to fire Mr. Mueller directly. Mr. Mueller is examining Russia’s alleged meddling into the 2016 presidential campaign and whether associates of Mr. Trump colluded with Moscow.

Mr. Grassley tried to bring the bill up under an expedited process at a meeting scheduled for this week, but Dianne Feinstein of California, the top Democrat on the Judiciary Committee, objected under committee rules. Ms. Feinstein said she wanted more time to study proposed amendments to the measure but supports efforts to protect Mr. Mueller.

“It’s vital that special counsel Mueller be allowed to continue his investigation without interference, and passing a bipartisan bill to ensure he can’t be fired without cause is essential,” said Ms. Feinstein.

Mr. Grassley said it isn’t clear whether he will support the measure but he is open to having the committee consider and vote on it. The measure was co-authored by two Republicans and is likely to draw at least some Republican support on the panel.

The bill would propose to enshrine into law a Justice Department regulation that a special counsel can’t be fired without cause. In addition, iIt would give a special counsel a 10-day window to challenge his or her firing in federal court. It would also ensure that any work product from a special counsel investigation couldn’t be destroyed until the courts ruled on the matter.

Still, enacting such a bill would be an uphill battle. It would need the buy-in of Republican leadership on Capitol Hill, who have encouraged Mr. Trump not to fire Mr. Mueller but have been reluctant to pass any legislation. If Mr. Trump exercised his prerogative to veto such a bill, it would need supermajorities in both the Republican-controlled House and Senate to pass. Asked if the White House would support or oppose a measure protecting the Mueller probe, Ms. Sanders said Wednesday, “We don’t have an administrative policy on that right now.”

“I haven’t seen a clear indication yet that we needed to pass something to keep him from being removed because I don’t think that’s going to happen,” Senate Majority Leader Mitch McConnell told reporters Tuesday. Mr. McConnell, a Kentucky Republican, said Mr. Mueller “should be allowed to finish his job.”

The proposal was authored by two Democrats and two Republicans— Cory Booker (D., N.J.), Lindsey Graham (R, S.C.), Chris Coons (D., Del.) and Thom Tillis (R., N.C.).


The bill “will install a needed check and ensure that special counsel Mueller and his team—and any future special counsels—are able to follow the facts and the law wherever they lead,” Mr. Booker said.

Before 1999, a Watergate-era law allowed the attorney general, in conjunction with a special three-judge panel, to appoint an independent counsel to investigate any wrongdoing by executive branch officials. The law was allowed to expire in 1999 after both conservative and liberal critics grew to believe the office was too powerful and operated with too little oversight.

Instead, the Justice Department created procedures to allow the appointment of special prosecutors on certain matters, but they ultimately answer to and can be overruled by the attorney general and have less autonomy than the independent counsels had.

The legal effort being taken up in the Senate would give special counsels new protections while avoiding some of the concerns about independent counsels.

Corrections & Amplifications
Senate Majority Leader Mitch McConnell told reporters Tuesday that he saw no indication special counsel Robert Mueller would be removed. An earlier version of this article incorrectly stated that he made the comment on Wednesday.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • BBBY -16.8%, AXTI -6.2%, (lowers Q1 revs guidance), APOG -5.8%, AGX -4.3%

Other news:

  • CYRN 23.6% (discloses that it has signed a material contract with one of the world's largest technology companies)
  • NVAX -17.3% (prices underwritten public offering of 30,303,050 shares of common stock at a price to the public of $1.65 per share)
  • COOL -12.6% (announces common stock offering)
  • DQ -6.2% (to offer 2 mln ADSs in follow-on public offering)
  • XELA -4.2% (prices offering by selling shareholders of of 7 mln shares of common stock at $5.00 per share)
  • AWK -1.3% (prices registered underwritten offering of 2.32 mln shares of its common stock at a price per share of $80.50)
  • BLMN -0.8% (Barry Rosenstein's Jana Partners lowers active stake)

Analyst comments:

  • ELLI -2.7% (downgraded to Underperform at Wedbush)
  • SLCA -1.9% (downgraded to Neutral at Goldman)
  • PBYI -1.8% (downgraded to Equal Weight from Overweight at Barclays)
  • BMY -1.1% (target lowered to $70 from $78 at Citigroup)
  • NTES -0.7% (resumed with a Underweight at JP Morgan)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance/SSS:

  • QNST +11.9%, (also says Kerrisdale claims in negative report are inaccurate), OZRK +3.3%, MDR +3.3%, ZUMZ +3%, (Zumiez reports March comps of +12.6 %vs +1.1% year ago and +9.2% last month), CBSH +3%, RAD +3%, DAL +2%, BLK +1.5%, BKE +1.1%, CBI +0.5%, COST +0.5%, LB +0.5%

Other news:

  • CYRN +23.6% (discloses that it has signed a material contract with one of the world's largest technology companies)
  • BLCM +22.6% (FDA has lifted the clinical hold on studies of BPX-501 in the U.S. )
  • RETA +11.6% (provides update on the Phase 2 portion of the CARDINAL study of bardoxolone methyl in patients with Alport Syndrome; treatment produced significant increase in kidney function maintained through week 36)
  • ALRN +5% (continued strength -- company confirmed after the close the publication of nonclinical results in Science Translational Medicine demonstrating the anti-cancer potential of ALRN-6924 in models of Acute Myeloid Leukemia)
  • OSTK +4.3% (stronger with Bitcoin +12%)
  • ABUS +2.8% (Arbutus Biopharma and Roivant Sciences entered into an agreement to launch Genevant Sciences; Roivant will contribute $37.5 million in transaction-related seed capital)
  • CLDR +2.4% (Director disclosed the purchase of 25k shares)
  • FEYE +1.1% (continued strength)
  • GSK +1.1% (signs strategic agreement to transfer rare disease gene therapy portfolio to Orchard Therapeutics)

Analyst comments:

  • FTI +4.6% (upgraded to Buy from Neutral at Goldman)
  • INCY +2.3% (upgraded to Buy from Neutral at UBS)
  • MYL +1.1% (upgraded to Outperform from Mkt Perform at Leerink Partners)

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

  • BLCM +27.7%, QNST +13.6%, RETA +11.6%, FTI +5.2%, ALRN +5%, ZUMZ +3%, ABUS +2.8%, CBSH +2.6%, CLDR +1.9%, BLK +1.9%, AWK +1.5%, FEYE +1%, OZRK +1%, GSK +0.8%, DAL +0.8%, CBI +0.5%

Gapping down:

  • NVAX -18.3%, BBBY -16.2%, COOL -11.3%, AXTI -6.2%, APOG -5.8%, AGX -4.3%, DQ -3.8%, SLCA -1.9%, XELA -1.4%, RAD -1.2%, BLMN -0.8%

>>> Shire: Takeda relationship banks could finance bid,

MergerMArket

Shire: Takeda relationship banks could finance bid, sources say

  • Partial asset sales seen key to 2x net debt/EBITDA target
  • Dilution north of 30% to prompt pushback – Takeda investors

Takeda Pharmaceutical’s [TYO:4502] main banks – Sumitomo Mitsui Banking Corp (SMBC), MUFG Bank and Mizuho Bank – are willing to lend JPY 2trn to JPY 3trn (USD 19bn – USD 28bn) or more if necessary to fund a takeover of Shire [LON:SHP], said sources familiar with the situation.

The sources say many Japanese companies are awash with cash, so the banks are having a problem finding borrowers. “There is no reason for Takeda to be unable to borrow,” one of the sources said, “Takeda is a perfect blue-chip company in Japan.”

Another source said Osaka-based Takeda has especially close and long-term ties with SMBC, which was also based in Osaka initially. Moreover, SMBC is also considered to have a higher risk appetite than its mega bank peers, the second source added.
Spokespeople for MUFG and Mizuho said they cannot make comments on individual lending situations. Sumitomo Mitsui Financial Group (SMBC)’s spokesperson declined to comment.
Nevertheless, it looks like Takeda needs to be quite creative in forming a hybrid structure of financing combining cash, equity, convertible bonds, and asset sales, in a possible GBP 36.5bn (USD 51.6bn) acquisition of Shire to keep its net debt/EBITDA multiple from rising much above 3x, according to bankers and Dealreporter analytics.

At a briefing for sell-side analysts last week, Takeda’s CEO Christophe Weber indicated Takeda is exploring the acquisition of Shire in its entirety. Even if the net debt/EBITDA multiple rises above 3x over the near term, Takeda would work to quickly bring this down to around 2x, according to a Tokyo-based analyst.

Weber also indicated Takeda would be looking to maintain its current credit rating of A1 by Moody’s and has no plan to change its dividend policy of JPY 180 DPS, the analyst said.

Based on precedent deals premium analysis, Japanese bidders on average offered a 30% premium to the unaffected share price before announcement. At a 30% premium to Shire’s share price of GBP 30.70 prior to the initial announcement of 28 March, Takeda, for instance, would require GBP 36.5bn (USD 51.6bn) to finance the acquisition. As of the three-month period ended 31 December 2017, Takeda has JPY 440.3bn (USD 4.1bn) on hand and reported net debt of JPY 698bn (USD 6.5bn) and a 12-month rolling EBITDA of JPY 502.6bn (USD 4.7bn).

Shire, meanwhile, has USD 18.6bn net debt with an EBITDA of USD 6.5bn as of financial year ended 31 December 2017.

Shire’s equity value is almost USD 8.8bn higher than Takeda as of 11 April. With a 30% premium as per the aforementioned scenario (Shire is up 17% since announcement), Takeda would need to arrange financing of more than USD 47.5bn on top of its available cash on hand, according to Dealreporter analytics.

Given the assumptions above, the following are several possible scenarios for financing this acquisition based on a 30% premium, according to Dealreporter analytics:
  1. All cash – Takeda would need to borrow at least USD 47.5bn to finance the acquisition entirely by cash because of Shire’s net debt/EBITDA at 2.9x (the company is heavily geared since the USD 32bn acquisition of Baxalta in 2016). It would put the pro-forma net debt/EBITDA at 6.8x.
  2. A combination of cash and equity – Takeda can borrow up to JPY 2trn (USD 18.7bn) and put its net leverage to over 4x while the rest of the financing would need to come from equity (exchange offer) or capital raisings. Dilution would be at 46%.
  3. Another combination of cash and equity – Takeda borrows up to JPY 860bn (USD 8bn) and put its net debt/EBITDA multiple to 3.3x, and the rest of the financing to come from equity (exchange offer) or capital raisings.
  4. All share deal – Pro-forma net debt/EBITDA would be 2.2x without any extra debt, yet the dilution would become 57.9% of the combined company. But currently, Takeda is not traded on LSE so it is unclear how an equity bid would be structured.
Thus, if Takeda combines USD 8bn in borrowed cash plus equity (exchange offer or public offering), the dilution would be around 53.9% and the pro-forma net debt could stay at around 3x as Takeda’s CEO indicated.

But this 53.9% dilution would not be acceptable to Takeda investors in Japan, fund managers told this news service. To bring this dilution down to the acceptable level of 30%, Takeda has to sell GBP 19bn (30%) worth of assets at the combined company.

If Takeda borrows USD 18.7bn and uses equity, the dilution would be 46% and the pro-forma net debt could be around 4x. To bring this 46% dilution to 30%, Takeda must sell at least GBP 11.7bn (18%) worth of assets at the combined company, according to analysis by this news service.

A Tokyo-based institutional investor who holds a stake in Takeda asked: “Will Takeda really do this deal? We can never accept such a huge dilution. I would definitely object to this acquisition plan.”

Takeda, which has been paying a solid dividend of JPY 180 per share, is known as a dividend stock and therefore has been the most popular Japanese stock, especially, for individuals with NISA (Nippon Individual Savings Account) accounts in Japan.

Another Tokyo-based fund manager said many NISA investors expect Takeda to continue to pay stable and high dividends. In fact, many existing Takeda shareholders should be worried that this stock may be becoming a different kind of stock after the acquisition of Shire, the fund manager said.

Weber indicated last week Takeda would quickly bring the net debt/EBITDA multiple down to around 2X, even though it rises above 3x over the near term, but he also said Takeda is not considering purchasing only some businesses or assets of Shire, the analyst said.

However, in each of the above scenarios with a cash component, if the combined company does not resolve the high debt level of Shire (either by selling businesses with high debt or non-core assets to improve its financials), it is not possible for Takeda to bring down its net leverage back to 2x, according to Dealreporter analytics.

A few Tokyo-based ECM bankers said, meanwhile, the size of a public offering (and an exchange offer) should be kept at less than 20% to 30% of a company’s market cap. “If the size of equity offerings exceeds 30%, the company will be asked to explain what kinds of growth plans the company has to justify such a dilution,” said one ECM banker.

“This is such an atypical way of acquiring a company by a Japanese company,” said one Hong Kong-based investor. “So far, every single Japanese bidder did acquisitions in cash. They are carefully planned. They bought target companies that could be affordable. They all paid a lot of premiums.”

Takeda will make an announcement in accordance with the UK’s Panel on Takeovers and Mergers regulations by 5pm on 25 April (UK time) and will announce by the same date whether it will submit an offer to Shire, a Takeda spokesperson said.

The share price of Takeda closed 1.1% higher at JPY 5,055 in Tokyo on Wednesday (11 April). The share price of Shire, meanwhile, traded 0.7% lower at GBP 36.27 at market close 11 April.