Billionaire’s Offer for Christian Dior Needs a New Look
Bernard Arnault wants to simplify his holdings of Dior and LVMH, but his proposal is looking shabby
France’s richest man may need to dig deeper into his pocket if he wants to straighten out his tangle of shareholdings in luxury leaders LVMH LVMUY -0.25% and Christian Dior . CDI -0.33%
Bernard Arnault announced last month that he wanted to buy out minority shareholders in Christian Dior, the listed entity through which he owns most of his stake in LVMH. He would pay what he said was Dior’s book value of €260 a share, in a mixture of cash and shares in a third luxury company whose shares he owns, Hermès.
But if the offer was ever pitched at book value, it no longer is.
Mr. Arnault used different methodologies for valuing Dior’s 41% stake in LVMH, which accounts for most of the company’s book value, and his own stake in Hermès, which accounts for about a third of the offer package. The Dior stake in LVMH was valued using one-month and three-month average share prices, while the Hermès stake was valued using the last available price. Since luxury shares have rebounded very strongly year-to-date, the inconsistency had the effect of understating Dior’s book value by about €14 a share.
The other problem is that LVMH shares have risen about 8% since the deal was announced, while Hermès shares have fallen 4%. Plug the latest share prices into Mr. Arnault’s model and Dior is worth €293 a share, while his offer is worth just €257—a 12% discount. The billionaire essentially wants to buy Christian Dior’s fashion house, which is the company’s only other asset, for free, only to sell it on to LVMH for €6.5 billion.
Some of the price moves since Mr. Arnault’s offer may be self-fulfilling. Dior shareholders, instead of waiting for the tender, have probably rotated into LVMH shares, boosting their value. They may have also sold Hermès shares, anticipating that they will receive fresh ones from Mr. Arnault.
Still, Dior’s shareholders have little to gain from selling out at a 12% discount to book. In the month before the announcement the Dior discount to book value as implied by LVMH’s stock price averaged 15%, calculates brokerage Bernstein. If Mr. Arnault wants the Dior minorities, he will probably have to offer more for them.
Of course, he might choose to walk away instead. Dior shares would then likely fall in rhythm with LVMH’s, which have also been buoyed by the earnings-boosting prospect of integrating the Dior fashion house. But this risk can be covered by a short position in LVMH stock. A stake in Dior would then amount to a pure bet that the discount between the companies’ valuations will close.
This seems a reasonable bet to make. Mr. Arnault has made clear he wants to simplify his empire, yet the discount remains almost as wide as it was before. That can’t last.
Marathon Partners discloses updated portfolio positions in 13F filing: New positions in P and TVPT
Highlights from 2017 Q1 filing as compared to 2016 Q4 filing:
- New positions in: P (~0.1 mln shares), TVPT (~0.1 mln)
- Increased positions in: ONDK (to ~1.51 mln shares from ~1.25 mln shares), USFD (to ~0.46 mln from ~0.38 mln)
- Maintained positions in: DAR (~1.08 mln shares), JAX (~0.79 mln shares), MWA (~0.55 mln shares), SEAS (~0.52 mln shares), FNFV (~0.46 mln shares), TRK (~0.35 mln shares), EBAY (~0.32 mln shares), PYPL (~0.26 mln shares)
- Decreased positions in: GRUB (to ~0.38 mln shares from ~0.55 mln shares), SFLY (to ~0.58 mln from ~0.73 mln), WWE (to ~0.08 mln from ~0.2 mln
Soroban Capital Partners (Eric Mandelblatt) discloses updated portfolio positions in 13F filing: New positions in STZ and LOW; closed position in AXTA
Highlights from 2017 Q1 filing as compared to 2016 Q4 filing:
- New positions in: FWONK (~12 mln shares), STZ (~4.63 mln), LOW (~4.5 mln)
- Increased positions in: NXPI (to ~9.75 mln shares from ~8.16 mln shares), AAP (to ~1.74 mln from ~1.04 mln), SBAC (to ~3.32 mln from ~2.89 mln), AVGO (to ~2.45 mln from ~2.16 mln)
-
Closed positions in: AXTA (from ~4.17 mln), YUMC (from ~1.65 mln), FLT (from ~0.79 mln)
- Decreased positions in: PCLN (to ~0.11 mln shares from ~0.12 mln shares)
Temasek Holdings discloses updated portfolio positions in 13F filing; increased position in CTRP
Highlights from 2017 Q1 filing as compared to 2016 Q4 filing:
- New positions in: SNAP (~0.3 mln shares), SENS (~0.28 mln)
- Increased positions in: CTRP (to ~5.3 mln shares from ~4.78 mln shares)
- Maintained positions in: LVLT (~65.03 mln shares), BABA (~35.5 mln shares), INFO (~21.17 mln shares), GILD (~14.44 mln shares)
- Closed positions in: SYF (from ~1.12 mln shares)
- Decreased positions in: AMRS (to ~51.83 mln shares from ~61.12 mln shares), UNVR (to ~14.17 mln from ~18.17 mln), TMO (to ~1.61 mln from ~2.9 mln), DVMT(to ~1.21 mln from ~1.58 mln)
Weekly Performance
Dow -0.53% S&P -0.35% Nasdaq +0.34% Russell -1.02% Mexico -0.12% (+0.77% in $) Brazil +3.82% (+5.66% in $) Nikkei +2.25% Hang Seng +2.78% CSI +0.08% Shanghai +0.72% EuroStoxx -0.58% FTSE +1.89% CAC -0.50% Dax+0.42% Ibex -2.14% MIB +0.43% SMI +1.18%
The trading week opened in a relatively listless manner. Global markets appeared to have priced in the Macron victory and with much of the key April economic data and Q1 earnings season in the rear view mirror investors were forced to steer through a more than two-decade low in the VIX volatility index. The economic data this week stuck to a now familiar pattern. US CPI and retail sales figures missed expectations while European numbers largely bested expectations and supported a third straight week of better performance by many overseas stock markets. US rates backed up for much of the week while Treasury refunding supply was met with tepid demand and various Fed officials affirmed their belief that two more rate hikes this year remained plausible. Crude prices held the support levels found late last week but have had a tough time pushing away from the Nov 2016 lows despite continued reports OPEC and non-OPEC producers are moving towards an agreement to extend production cuts for at least six more months. Gold prices have held above the $1,200 mark while a surge in bitcoin to fresh all-time highs above $1,700 garnered quite a bit of attention. Reports circulated that Chinese regulators are nearing the formal publication of bitcoin regulations that could further legitimize the digital currency. For the week the S&P500 fell 0.4%, the DJIA lost 0.5%, while the Nasdaq gained 0.3%.
Macro :
- Bordeaux 2016 Wine Starts to Price Above 2015, Liv-ex Data Show
- China in Talks With U.S., France for More Air Rights: CAAC
- Greece Cuts 2017 Growth Forecast to 1.8% From 2.7%: Reuters
- N.Korea Missile Closer to Russia Than Japan: White House
Keep an eye :
- AIR FP : Lion Air Says Its 1st Boeing 737 Max Delivery Delayed by 4 Days
- ABE SM : Atlantia May Bid for Abertis on Monday: Messaggero, public offer will be 70% cash and 30% shares and is likely to be priced at EUR 16- EUR 17 a share. (Il Sole 24)
- AKZA NA : Dutch Investor Group VEB Opposes PPG Making Hostile Bid for Akzo
- BARC LN : Barclays rumored to be mulling sale of 16% stake in African unit - Reuters
- BLT LN : BHP Plans to Drop Billiton from Name, Launches TV Ad Campaign
- BPM PL : Banco BPM May Consider Paying Dividend in 2017: Sole
- DBK GY : Deutsche Bank to Start Asset Management IPO Talks in Sept.: FAS
- DYS LN : Vacuum Tycoon Dyson Close to London Property Deal, S. Times Says
- DWNI GY : Deutsche Wohnen Would Evaluate Bid From Rival, CFO Tells FT
- ENEL IM : Enel looking for opportunities in electricity transmission assets in South America - CFO
- GSK LN : GlaxoSmithKline preps shareholders for buyout of 36.5% Novartis stake in GSK Consumer Healthcare
- SDF GY : K+S Is in Talks With Possible New Major Shareholder: FAS
- NOVN VX : Novartis Treatment Granted Orphan Drug Status by FDA
- PAXN SW : Holders of More Than 10% of Pax May Reject Baloise Offer: FuW
- PAH3 GY : Porsche North America Recalls 51,497 Macan S, Macan Turbo SUVs
- RNO FP : Renault Halts Production at Some Sites to Halt Virus Spread
- SAF FP : GE Sees No Change to Engine Output Plans After 737 Grounding
- SKY LN : Fox Said Willing to Make Concessions to Win Approval for Sky Bid
- UBSG VX : UBS, U.K. Revenue Office in GBP100m Tax Dispute: Mail on Sunday
- VOW3 GY : Volkswagen Recalls 240,487 Audi Q5, Q7 SUVs on Fuel Pump Parts