© Financial Times

Be the first to know about every new Coronavirus story

One scoop to start: Private equity group Advent International is in talks to buy a key unit of the data company Nielsen in a deal that would value it at about $2.9bn. Get the full story from DD’s Kaye Wiggins and James Fontanella-Khan.

Plus one big event coming up: The FT Dealmakers Summit, a full-day virtual conference put on by FT Live and the Due Diligence team, on November 10. 

Read up on the full event agenda here which includes speakers from top banks, law firms, corporations and private equity groups. Use this link to register.

Welcome to the Due Diligence briefing from the Financial Times. Not a subscriber? Sign up here. Drop us a line and join the conversation: Due.Diligence@ft.com.

LVMH and Tiffany’s $16.6bn soap opera

We told you it was always a price negotiation.

But like any good telenovela, the twists and turns of LVMH and Tiffany’s rocky engagement were irresistible to watch, no matter how predictable.

© REUTERS

For months, we’ve been chronicling the fate of the French luxury conglomerate’s planned takeover of the US jeweller. So to kick off today’s DD, we thought we’d try our hand at a mini screenplay on how the merger drama played out. 

A wealthy patron (LVMH) falls for a diamond in the rough (Tiffany). The marriage is sealed after an intense courtship. Then, after all the documents are signed, the French luxury conglomerate begins to get cold feet. 

Things begin to unravel alongside the global coronavirus pandemic, and grow nasty pretty quickly. Outside parties, including the French government, get involved. The international media seizes upon the threatened divorce. And now, just before a courtroom showdown, the two sides finally come to their senses. (End scene)

That’s where we find ourselves after DD’s James Fontanella-Khan and Arash Massoudi and the FT’s Leila Abboud reported that the two are on speaking terms again, exploring the possibility of renegotiating their $16.6bn deal to avoid a court battle in January.

Bernard Arnault, LVMH founder © Magali Delporte FT Commission

LVMH boss Bernard Arnault, otherwise known as “the wolf in cashmere”, has been angling for a price cut on his initial offer of $135 a share in cash for the US jeweller since the pandemic struck. The drama climaxed last month when the French billionaire threatened to walk away from the deal altogether, citing supposed French government demands. 

But the jilted Tiffany is willing to forgive and forget, according to DD’s sources, saying it will consider a revised price as long as it is above $130 a share, and LVMH will agree to close the deal without any further objections.

The French company says it is also open to discussing such terms. One person says the price will have to fall below $133 a share to sway the cashmere-clad Arnault back down the aisle.

Shares in Tiffany rallied nearly 5 per cent on the news, closing at $128.88.

Whether or not the nuptials are back on, the pair are unlikely to pop open the Moët & Chandon just yet. 

Analysts have predicted sales in the luxury sector could drop as much as 30 per cent this year, although third-quarter sales from LVMH and Hermès showed glimmers of recovery driven by Asian and US shoppers.

M&A insurance: mind the fine print

With some 800 M&A insurance contracts underwritten per year, AIG is one of the biggest players in a fast-growing global market. 

AIG chief Brian Duperreault © © FT montage

Emerging from its share of hardships over the years, the US insurance company has bent to the will of activist investor Carl Icahn, announcing plans to split off its life insurance business from its larger property and casualty arm. 

As part of the restructuring, its chief executive Brian Duperreault will step down on March 1, to be succeeded by current president Peter Zaffino.

But that’s not the only action happening over at AIG: the company is also facing one of the biggest M&A insurance claims ever filed in Europe. 

And it doesn’t want to pay.

The insurer’s closely-held purse strings have sparked a five-year battle with Japanese construction conglomerate Lixil, which in 2014 purchased M&A insurance from AIG ahead of its €3bn acquisition of German bathroom fittings maker Grohe.

But one year later, the deal hadn’t gone as planned. A long-running accounting fraud scandal at Joyou, a China-based subsidiary of Grohe, was uncovered, triggering $560m in losses at Lixil.

Yoshiaki Fujimori, right, former president and chief executive of Lixil, shakes hands with David Haines, Grohe chairman, before Lixil acquired all of the German group © AFP

In an attempt to recover at least some of those losses, Lixil then turned to a consortium of 20 insurers, including AIG, who had underwritten a €270m M&A insurance. AIG covers the first tranche of the contract.

The insurers, however, are citing a clause that they said ruled out coverage for the specific type of damage. In May, an arbitration panel ruled in favour of the insurers. Lixil is now challenging that view in a Frankfurt court, which is set to decide the case on November 19.

The landmark case is going to be closely watched among corporate dealmakers as M&A insurance — also known as warranty and indemnity insurance (W&I) — has become increasingly popular in recent years. 

One in five corporate takeovers these days include W&I insurance, up from just one in 10 deals between 2010 and 2018, according to data by CMS Hasche Sigle.

According to Kai Wallisch, a Stuttgart-based lawyer with CMS, the fight may fuel concerns among corporate dealmakers that insurance companies might be reluctant to pay in worst-case scenarios. Best tread carefully, dealmakers.

Private equity’s bet on debt

Debt collection is an often risky and capital-intensive business that involves buying defaulted loans and chasing down the borrowers.

Lockdowns made the job of collecting on those unpaid debts that much harder earlier this year.

But Permira believes that the business will boom once the government-support schemes that have propped up the economy during the pandemic come to an end. 

Last week, the private equity group and other shareholders wrote a hefty £600m equity cheque to prop-up Leeds-based Lowell, a so-called credit management services group that has long faced questions about its own debt burden.

The juicy cash injection marks the biggest private equity lifeline for a company in Europe since the pandemic began. And it gave Lowell the ballast needed to raise £1.6bn worth of new junk bonds and refinance its existing debt.

A good day for the company’s bondholders proved a bad day for short-sellers, however.

Hedge funds have long bet against Lowell’s solvency. Many got their fingers burnt wrongly expecting Permira to walk away. 

The way the refinancing was structured was particularly painful for these shorts because it is likely to “orphan” the company’s credit-default swaps — leaving them essentially worthless. Ouch.

Job moves

  • Hedge fund Man Group has promoted Russell Korgaonkar to investment chief of its quantitative AHL unit after leading investment strategies there. He succeeds Matthew Sargaison, who remains co-chief executive of the unit.

  • William Hinman will retire as director of the SEC’s division of corporate finance later this year. Before joining the US regulator in 2017, he was a senior partner in Simpson Thacher & Bartlett’s Silicon Valley office. 

Smart reads

Knightsbridge for non-billionaires Those without a bottomless credit card margin wandering London’s most garishly expensive streets in search of sustenance might wonder why they even bothered without a bottomless credit card margin. The FT’s own Bryce Elder is here to help. (FT)

One-hit wonder The highly-anticipated public debut of the music agency behind K-Pop sensations like BTS sent fans-turned retail investors and seasoned institutional investors alike into a frenzy. But by the end of its first trading day, shares were falling out of tune. But even the world’s top boy band can’t reverse the music industry’s declining profitability. (FT)

Faulty algorithms Jack Dorsey governs the Twittersphere with a laissez-faire approach. But with the US government, foreign bad actors, and the activist hedge fund Elliott Management on his list of worries, to name a few, it’s time to hop in the driver’s seat. (WSJ)

News round-up

AMD to buy rival chipmaker Xilinx in $35bn all-stock deal (FT + Lex)

Goldman accused of covering up sexual misconduct allegation (FT)

Waymo strikes self-driving lorry deal with Daimler Trucks (FT)

Adelson’s Las Vegas Sands exploring $6 billion sale of Vegas casinos (BBG)

Genius Sports in talks to go public through Spac (BBG) 

HSBC considers paying 2020 dividend as profits beat estimates (FT + Lex)

Santander back to profit after quicker customer recovery (FT + Lex)

TikTok moves into social ecommerce with Shopify deal (FT)

Poland’s biggest IPO raises expectations for foreign investors (FT)

Oil traders braced for balancing act in wake of US election (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



Get alerts on Mergers & Acquisitions when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article