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LVMH tries to leave Tiffany at the altar

LVMH chief Bernard Arnault has shown himself to be a great citizen. 

After French president Emmanuel Macron declared the country “at war” in the early days of the coronavirus pandemic, Europe’s richest man got his luxury conglomerate to produce much needed sanitiser to donate to hospitals. 

On Wednesday, it emerged that Arnault, pictured below, again sought to help his country, this time in a different kind of battle — a trade war with US president Donald Trump

It all started with a letter from the French foreign minister, Jean-Yves Le Drian, on August 31 asking the Paris-based luxury group to delay the closing of its $16bn takeover of US jeweller Tiffany

“I am sure that you will understand the need to take part in our country’s efforts to defend its national interests,” Le Drian wrote. Tiffany, despite being a party to the merger, didn’t know about the letter until Tuesday, which sparked off a train of events. 

Not one to shy away from civic duty, Arnault went a step further on Wednesday. LVMH decided it would not just postpone the deal, it would try to back out of it entirely under the current terms. 

There’s no need to feign surprise, DD told you it was headed this way months ago. It seems Tiffany, which immediately hit back with a lawsuit against LVMH, thought so too. 

The US company responded by accusing the French group of stalling the antitrust process to run out the clock on the merger agreement and alleged it had tried to come up with ways to use the coronavirus pandemic and social justice protests in the US to renegotiate the deal. 

LVMH has opted to lean on the classic “it’s out of our hands” line. Jean-Jacques Guiony, its chief financial officer, said on a conference call with investors that “the deal cannot take place”. The problem with this turn of events is that it’s all very convenient. And the latest reports out of France suggest the government’s request to LVMH was just advisory and non-binding

Let’s recap how we got here. 

When LVMH agreed to pay $135-a-share for Tiffany back in November, coronavirus was not yet the most used and feared word in the English language. 

There was still hope that a growing middle class in China and other emerging markets would bring the sparkle back to one of the most recognised luxury brands in the world — immortalised by the book and film Breakfast at Tiffany’s

But the pandemic hit luxury goods hard. No one knows that better than Arnault. His vast fortune has shrunk by $20bn since last year. Tiffany shares were on the decline and the 37 per cent premium LVMH had offered in November to win shareholders over all of a sudden started to look very expensive. 

As various deals agreed prior to coronavirus started to fall apart, rumours were swirling that Arnault wanted to recut the Tiffany deal and get a lower price. But how to go about it? Locked into an iron-tight merger agreement, Arnault couldn’t walk away from a deal. His plan instead was to create leverage by sowing doubt among Tiffany’s shareholders that the deal was on the rocks. That would keep putting pressure on the company’s share price and, in the best-case scenario for LVMH, force it back to the negotiating table. It didn’t work. 

Now Arnault believes he has the perfect line — “the government made me do it”. But it’s not clear that everyone is buying it. 

“It makes you want to laugh out loud,” one deals lawyer told DD. Stock market investors took a similar view. Shares in Tiffany, which tanked in pre-market trading as much as 20 per cent on Wednesday, recovered to close down only 6.5 per cent.

Judging by the way this is heading, all the way to the Delaware Court of Chancery, it appears that despite breaking off the engagement, the “wolf in cashmere” might have met his match in Tiffany. 

Reliance rolls out the red carpet (again)

© REUTERS

Mukesh Ambani, India’s richest man and chairman of conglomerate Reliance Industries, pictured above, knows how to throw a party.

Like the time Beyoncé performed at his daughter’s wedding while Bollywood superstar Shah Rukh Khan, former BP chief executive Bob Dudley, Hillary Clinton and Ban Ki-moon danced the night away.

But the rumoured-$100m nuptials had nothing on the sale of his telecom business Jio earlier this year.

The A-list guest list included tech heavyweights, sovereign wealth funds, and private equity shops eager to gain entrance to the world’s fastest-growing smartphone market.

Tech groups race to get on board India’s Jio Platforms

And now investors are back for another round as Reliance hawks stakes in its retail business, the largest in India.

Our colleagues revealed on Wednesday that the Abu Dhabi Investment Authority and Saudi Arabia’s Public Investment Fund are in talks to invest about $750m and up to $1.5bn, respectively. Another Abu Dhabi sovereign investment vehicle Mubadala and private equity group KKR are also considering stakes.

That follows Silver Lake’s announcement that it would invest $1bn into Reliance Retail, confirming an FT scoop from last week. All have previously invested in Jio.

The powerful conglomerate has used its legacy businesses in petrochemicals and refining to fund a pivot into consumer-facing projects such as telecoms, digital services and retail. Reliance Retail runs groceries, electronics as well as the Indian outlets of brands like Tiffany and Armani.

Central to its plans is to use its retail clout to push into ecommerce, an enticing prospect for Jio’s foreign backers.

If India’s aspiring internet group succeeds in establishing an online shopping empire, DD wonders if its friends in Silicon Valley will come knocking again.

SoftBank’s black whale

We know that our subscribers often turn to DD for answers when it comes to SoftBank — the Japanese conglomerate that claims to invest based on a 300-year vision, yet is also happy making short-term punts on the direction of US stocks.

And ever since the FT last week unmasked Masayoshi Son’s company as the “Nasdaq whale” behind an aggressive equity option bet on US tech companies, we’ve heard a fair few questions from puzzled readers.

For example, behind these trades was a new asset management unit, armed with $555m of initial capital made up in part by funds contributed by Son, that was unveiled last month. But how does an investment unit with $555m of capital buy $4bn worth of equity derivatives?

Well, the unit actually has far larger firepower at its disposal because it uses loans of cash and publicly traded securities from SoftBank’s vast balance sheet to make its investments. 

While we can answer that question, we are drawing a blank on several other relatively basic questions about Son’s new internal hedge fund:

  • Who (if anyone) formally heads the unit?

  • Who, other than Son, is on its investment committee?

  • When was the investment management group even established?

And we’re not the only ones: several large institutional investors have asked SoftBank the same questions and have not received satisfactory answers.

The bottom line though is this: given that SoftBank has just added a new box to its org chart, is anyone really so surprised it’s a black one?

Job moves

  • Orsted, the world’s biggest offshore wind developer, has hired Mads Nipper as its new chief executive. Nipper, current chief executive of pumpmaker Grundfos, will replace Henrik Poulsen early next year. More here.

  • Centerview Partners has hired Catherine Arnold as a partner in its New York practice. She previously worked as a portfolio manager and biopharmaceuticals analyst at Wellington Management Company.

  • SoftBank’s chief compliance officer Chad Fentress has departed the company and surrendered his board seat on WeWork, Bloomberg reported. His LinkedIn profile now lists him as the founder of Novare Consulting.

Smart reads

Black board members “We don’t have enough of them,” admitted Zillow, Nextdoor, and 15 other companies as they pledged to add a black director to their boards within one year. The movement comes as a growing body of research shows that corporate America has not lived up to its promises of becoming more diverse. (WSJ)

The battle for Bollywood Netflix, Disney Plus and Amazon Prime Video are racing to plant their flags in India. Bollywood’s vast universe of studios and stars, coupled with a cinema-hungry population in lockdown, have created fertile ground for the next frontier of the streaming wars. (FT)

Privacy guaranteed Is private equity too private? Investors have poured billions into the asset class, an increasingly adopted method for pension funds, insurers, and endowments to diversify their portfolios. But the industry’s lack of succinct benchmarks and reporting leaves a distorted view of its sheer size and power. (The Economist)

News round-up

Newcastle owner claims Premier League shot down £300m Saudi takeover (FT) 

Warren Buffett’s Berkshire Hathaway to invest $570m in Snowflake (FT + Lex)

JC Penney on cusp of rescue deal with landlords (Reuters) 

Italy to use golden power over Milan bourse, wants Euronext merger (Reuters)

US companies defy Trump’s demands to leave China (FT)

Petco owners weighing $6 billion sale or public offering (BBG)

Elliott seeks to break up Chevron’s takeover of Noble (BBG)

Saudi Arabia to keep pumping despite fall in crude prices (FT)

Due Diligence is written by Arash Massoudi, Kaye Wiggins and Robert Smith in London, Javier Espinoza in Brussels, James Fontanella-Khan, Ortenca Aliaj, Sujeet Indap, Eric Platt, Mark Vandevelde and Francesca Friday in New York and Miles Kruppa in San Francisco. Please send feedback to due.diligence@ft.com


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