Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Bernard Arnault, <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vuitton-se-unsp-adr" target="_blank" data-smartkarma-citation="entities:28477:1" rel="noopener">LVMH Moet Hennessy Louis Vuitton SE-UNSP ADR (LVMUY US)</a>'s Chairman/CEO, must rue the day his company pitched an Offer for <a href="https://www.smartkarma.com/entities/tiffany-co" target="_blank" data-smartkarma-citation="entities:14729:1" rel="noopener">Tiffany &amp; Co (TIF US)</a>, a little under two months before COVID-19 first hit the news. 
LVMH and Tiffany reached a definite agreement on the <a href="https://investor.tiffany.com/static-files/9a8842f4-4f7b-438f-a6c6-4d768c2d6546" target="_blank" rel="noopener">25 November 2019</a>, wherein LVMH would acquire Tiffany for $135/share (7.7% premium to last close) in a US$16.2bn transaction. Tiffany shareholders approved the merger on the <a href="https://investor.tiffany.com/node/22081/pdf" target="_blank" rel="noopener">4 February</a>.
The two parties had initially set August 24 as the first deadline for completing the transaction,  with the possibility of extending the deadline to November 24 at the latest (see <a href="https://www.sec.gov/Archives/edgar/data/98246/000119312519299997/d840067dex21.htm" target="_blank" rel="noopener">page 62</a> of the Merger Agreement lodged with the SEC) - one year from the initial agreement<a href="https://www.sec.gov/" target="_blank" rel="noopener">.</a> This "Outside Date" was extended to the 24 November after the merger failed to close on the 24 August.
In a very brief <a href="https://r.lvmh-static.com/uploads/2020/09/lvmh_press-release-9-september-2020.pdf" target="_blank" rel="noopener">press release</a> yesterday, LVMH said it will not be able to complete the Tiffany acquisition, in compliance with a directive from the French European and Foreign Affairs Minister to defer the merger. LVMH also said Tiffany had undergone a Material Adverse Affect (MAE).
In a strongly-worded, detailed response, Tiffany said it has no choice but to file a lawsuit to <a href="https://investor.tiffany.com/node/22406/pdf" target="_blank" rel="noopener">enforce the Merger</a>.
LVMH seeking non-compliance with its contractual obligation on account of a MAE, takes a leaf out of EQT's gameplay for <a href="https://www.smartkarma.com/entities/metlifecare-ltd" target="_blank" data-smartkarma-citation="entities:19219:1" rel="noopener">Metlifecare Ltd (MET NZ)</a>. And as in MET's case (<a href="https://skr.ma/8sLe8" target="_blank" rel="noopener">Metlifecare/EQT: The Retirement Solution</a>), LVMH may find itself having to reconsider a new Offer.
More comment below the fold.

Bernard Arnault, LVMH Moet Hennessy Louis Vuitton SE-UNSP ADR (LVMUY US)'s Chairman/CEO, must rue the day his company pitched an Offer for Tiffany &amp; Co (TIF US), a little under two months before COVID-19 first hit the news. 
LVMH and Tiffany reached a definite agreement on the 25 November 2019, wherein LVMH would acquire Tiffany for $135/share (7.7% premium to last close) in a US$16.2bn transaction. Tiffany shareholders approved the merger on the 4 February.
The two parties had initially set August 24 as the first deadline for completing the transaction,  with the possibility of extending the deadline to November 24 at the latest (see page 62 of the Merger Agreement lodged with the SEC) - one year from the initial agreement. This "Outside Date" was extended to the 24 November after the merger failed to close on the 24 August.
In a very brief press release yesterday, LVMH said it will not be able to complete the Tiffany acquisition, in compliance with a directive from the French European and Foreign Affairs Minister to defer the merger. LVMH also said Tiffany had undergone a Material Adverse Affect (MAE).
In a strongly-worded, detailed response, Tiffany said it has no choice but to file a lawsuit to enforce the Merger.
LVMH seeking non-compliance with its contractual obligation on account of a MAE, takes a leaf out of EQT's gameplay for Metlifecare Ltd (MET NZ). And as in MET's case (Metlifecare/EQT: The Retirement Solution), LVMH may find itself having to reconsider a new Offer.
More comment below the fold.

LVMH/Tiffany: In The Rough. Acts of God and Legal Restraint

Insight Provider, CrossASEAN Research

Nicolas Van Broekhoven

Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

Equity Bottom-Up

Oriental Watch is a play on Rolex demand in China and HK. As recently highlighted by fellow insight provider <a href="https://www.smartkarma.com/profiles/sameer-taneja-a0539e0c-84dd-4e66-9c40-6e598edfb4c5" target="_blank" data-smartkarma-citation="accounts:352" rel="noopener">Sameer Taneja </a>the revenue contribution of mainland China has steadily grown from just 19% in FY18 to over 40% in FY20. With Chinese consumers unable to travel to HK the company is naturally hedged. Price differentials have narrowed so more Chinese consumers are happy to buy Rolex, and other luxury watches, in their native cities. In Hong Kong the government is unleashing a 71 billion HKD stimulus package directly to its residents. Some of this cash could be spent on watches.FY20 revenues were down slightly (-3.4%) and profits were over 25% weaker but this was an impressive performance for a company that depends on luxury products sold in HK (mass protests and disruption between June 2019 to November 2019) closely followed by a pandemic in China/HK between January and March this year.Business from April to June 2020 has been steadily improving in mainland China while HK remains weak and Macau has fallen off a cliff as footfall to the island has collapsed. Fortunately, the company only operates one store in Macau.Oriental Watch remains a dividend aristocrat. The company will pay its final dividend by September and its interim dividend late December. Patient shareholders should collect at least 12%, and potentially much more, as the massive cash balance gets returned to shareholders.Risk/Reward in Oriental Watch remains favorable and our Fair Value estimate remains unchanged at 3.5 HKD (77% upside).

Oriental Watch is a play on Rolex demand in China and HK. As recently highlighted by fellow insight provider Sameer Taneja the revenue contribution of mainland China has steadily grown from just 19% in FY18 to over 40% in FY20. With Chinese consumers unable to travel to HK the company is naturally hedged. Price differentials have narrowed so more Chinese consumers are happy to buy Rolex, and other luxury watches, in their native cities. In Hong Kong the government is unleashing a 71 billion HKD stimulus package directly to its residents. Some of this cash could be spent on watches.FY20 revenues were down slightly (-3.4%) and profits were over 25% weaker but this was an impressive performance for a company that depends on luxury products sold in HK (mass protests and disruption between June 2019 to November 2019) closely followed by a pandemic in China/HK between January and March this year.Business from April to June 2020 has been steadily improving in mainland China while HK remains weak and Macau has fallen off a cliff as footfall to the island has collapsed. Fortunately, the company only operates one store in Macau.Oriental Watch remains a dividend aristocrat. The company will pay its final dividend by September and its interim dividend late December. Patient shareholders should collect at least 12%, and potentially much more, as the massive cash balance gets returned to shareholders.Risk/Reward in Oriental Watch remains favorable and our Fair Value estimate remains unchanged at 3.5 HKD (77% upside).

Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting

IPO and L/S equity, 2015 Starmine top stock picker, Global Equity Research Ltd

Rickin Thakrar

IPO and L/S equity, 2015 Starmine top stock picker

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Lvmh Moet Hennessy Louis Vuitton / Event-Driven

In a surprising twist, Victoria’s Secret parent owner <a href="https://www.smartkarma.com/entities/l-brands-inc" target="_blank" data-smartkarma-citation="entities:20339:1" rel="noopener">L Brands Inc (LB US)</a>  decided to drop its countersuit against private equity firm Sycamore Partners, who had decided to walk away from its 525mn USD deal to purchase Victoria’s Secret based on an argument surrounding the breach of an Ordinary Course covenant. L Brands shares have languished since this announcement six days ago. We discuss the implications for the LVMH/Tiffany deal below as well as our updated thoughts.Our previous research on LVMH/Tiffany can be found here:<a href="https://www.smartkarma.com/insights/lvmh-tiffany-deal-victoria-s-secret-deal-collapses-is-bernard-arnault-also-cautious" target="_blank" data-smartkarma-citation="insights:38695" rel="noopener">LVMH- Tiffany Deal: Victoria’s Secret Deal Collapses – Is Bernard Arnault Also Cautious?</a> <a href="https://www.smartkarma.com/insights/lvmh-tiffany-deal-bernard-arnault-makes-another-big-splash" target="_blank" data-smartkarma-citation="insights:37988" rel="noopener">LVMH – Tiffany Deal: Bernard Arnault Makes Another Big Splash</a> <a href="https://www.smartkarma.com/insights/lvmh-tiffany-deal-bernard-arnault-makes-another-big-splash" target="_blank" rel="noopener"></a>

In a surprising twist, Victoria’s Secret parent owner L Brands Inc (LB US)  decided to drop its countersuit against private equity firm Sycamore Partners, who had decided to walk away from its 525mn USD deal to purchase Victoria’s Secret based on an argument surrounding the breach of an Ordinary Course covenant. L Brands shares have languished since this announcement six days ago. We discuss the implications for the LVMH/Tiffany deal below as well as our updated thoughts.Our previous research on LVMH/Tiffany can be found here:LVMH- Tiffany Deal: Victoria’s Secret Deal Collapses – Is Bernard Arnault Also Cautious? LVMH – Tiffany Deal: Bernard Arnault Makes Another Big Splash 

LVMH/Tiffany: Victoria’s Secret Doesn't Challenge Deal Collapse: An Increased Risk of Deal-Breaks?

<a href="https://www.smartkarma.com/entities/tiffany-co" target="_blank" data-smartkarma-citation="entities:14729:1" rel="noopener">Tiffany (TIF US)</a> is an American jewellery company focused on hard luxury items such as jewellery and as well as silver and diamond engagement/wedding rings. Tiffany was founded in 1837 and had net sales of 4.4bn USD as of FY19. Tiffany received a friendly takeover offer of $135 per share in an all-cash deal from <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vui" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a>  in November 2019 with an expected completion date in mid-2020 with a completion date no later than August 24, 2020. LVMH is one of the largest luxury brands in the world and owns brands such as Dom Perignon, Bulgari, Marc Jacobs and Hublot.The bid and acquisition price may not come as a surprise given LVMH CEO Bernard Arnault has had a penchant for big acquisitions, even if oddly timed. There is scant evidence that Mr Arnault is likely to back away from a deal, despite the scope for deteriorating market conditions ( <a href="https://www.smartkarma.com/entities/carrefour-sa" target="_blank" data-smartkarma-citation="entities:21409:1" rel="noopener">Carrefour SA (CA FP)</a> in 2007 with Colony Capital as an example).Below, we look at the deal below and assess whether Arnault and LVMH are likely to complete the deal with Tiffany. More thoughts below.

Tiffany (TIF US) is an American jewellery company focused on hard luxury items such as jewellery and as well as silver and diamond engagement/wedding rings. Tiffany was founded in 1837 and had net sales of 4.4bn USD as of FY19. Tiffany received a friendly takeover offer of $135 per share in an all-cash deal from Lvmh Moet Hennessy Louis Vuitton (MC FP)  in November 2019 with an expected completion date in mid-2020 with a completion date no later than August 24, 2020. LVMH is one of the largest luxury brands in the world and owns brands such as Dom Perignon, Bulgari, Marc Jacobs and Hublot.The bid and acquisition price may not come as a surprise given LVMH CEO Bernard Arnault has had a penchant for big acquisitions, even if oddly timed. There is scant evidence that Mr Arnault is likely to back away from a deal, despite the scope for deteriorating market conditions ( Carrefour SA (CA FP) in 2007 with Colony Capital as an example).Below, we look at the deal below and assess whether Arnault and LVMH are likely to complete the deal with Tiffany. More thoughts below.

LVMH – Tiffany Deal: Bernard Arnault Makes Another Big Splash

Investment Advisors, JL Warren Capital

Junheng Li

Investment Advisors

JL Warren Capital

JL Warren Capital LLC is a leading independent equity research firm focused on Chinese companies and listed multinationals in China. We employ a bottom-up research approach that takes great care to avoid the acquisition of material non-public information. Through investigative due diligence including channel surveys and interviews, our research helps clients to pinpoint the dislocations in the market.

Thematic (Sector/Industry)

While we are confident that the Chinese authorities and their 40-million population “lockdown” strategy in Hubei province will eventually  contain  the Coronavirus and this crisis shall pass similar to the SARS and MERS epidemics, we have cut our ratings on <a href="https://www.smartkarma.com/entities/nike-inc-cl-b" target="_blank" data-smartkarma-citation="entities:6658:1" rel="noopener">Nike Inc Cl B (NKE US)</a> , <a href="https://www.smartkarma.com/entities/estee-lauder-companies-cl-a" target="_blank" data-smartkarma-citation="entities:8713:1" rel="noopener">Estee Lauder Companies Cl A (EL US)</a><a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vui" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a><a href="https://www.smartkarma.com/entities/kering" target="_blank" data-smartkarma-citation="entities:21492:1" rel="noopener">Kering (KER FP)</a><a href="https://www.smartkarma.com/entities/trip-com-group-ltd" target="_blank" data-smartkarma-citation="entities:180:1" rel="noopener">Trip.com (TCOM US)</a><a href="https://www.smartkarma.com/entities/noah-holdings-ltd-spon-ads" target="_blank" data-smartkarma-citation="entities:13585:1" rel="noopener">Noah Holdings Ltd Spon Ads (NOAH US)</a> and all casino gaming stocks, based on their likely downward revisions in earnings in H1 2020.  We have kept our positive ratings on <a href="https://www.smartkarma.com/entities/new-oriental-education-tech-grp-adr" target="_blank" data-smartkarma-citation="entities:531:1" rel="noopener">New Oriental Education (EDU US)</a><a href="https://www.smartkarma.com/entities/tal-education-group" target="_blank" data-smartkarma-citation="entities:1124:1" rel="noopener">TAL Education (TAL US)</a><a href="https://www.smartkarma.com/entities/momo-inc" target="_blank" data-smartkarma-citation="entities:26075:1" rel="noopener">Momo Inc (MOMO US)</a><a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a><a href="https://www.smartkarma.com/entities/baidu-inc" target="_blank" data-smartkarma-citation="entities:179:1" rel="noopener">Baidu (BIDU US)</a> , based on favorable risk-reward, considering respective business cycle and stock valuation.  (Appendix 1)

While we are confident that the Chinese authorities and their 40-million population “lockdown” strategy in Hubei province will eventually  contain  the Coronavirus and this crisis shall pass similar to the SARS and MERS epidemics, we have cut our ratings on Nike Inc Cl B (NKE US) , Estee Lauder Companies Cl A (EL US)Lvmh Moet Hennessy Louis Vuitton (MC FP)Kering (KER FP)Trip.com (TCOM US)Noah Holdings Ltd Spon Ads (NOAH US) and all casino gaming stocks, based on their likely downward revisions in earnings in H1 2020.  We have kept our positive ratings on New Oriental Education (EDU US)TAL Education (TAL US)Momo Inc (MOMO US)Alibaba Group (BABA US)Baidu (BIDU US) , based on favorable risk-reward, considering respective business cycle and stock valuation.  (Appendix 1)

Coverage Rating Changes on Risks of Corona-Virus in China’s Economy and Financial System

France

Kering SA designs, manufactures and markets luxury and sport & lifestyle goods. The Company's brands include Gucci, Bottega Veneta, Alexander McQueen, Puma and Volcom. Kering operates globally and is headquartered in Paris, France.

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Kering (KER FP)

LVMH/Tiffany: In The Rough. Acts of God and Legal Restraint

Taking a leaf out of the EQT's gamplay for Metlifecare Ltd (MET NZ)

David Blennerhassett

Oriental Watch: Bet on Rolex Demand in China/HK and Collect 12% Dividends While Waiting

Oriental Watch is a play on Rolex demand in China and HK. As recently highlighted by fellow insight provider Sameer Taneja the revenue contribution...

Nicolas Van Broekhoven

LVMH/Tiffany: Victoria’s Secret Doesn't Challenge Deal Collapse: An Increased Risk of Deal-Breaks?

In a surprising twist, Victoria’s Secret parent owner L Brands Inc (LB US) decided to drop its countersuit against private equity firm Sycamore...

Rickin Thakrar

LVMH – Tiffany Deal: Bernard Arnault Makes Another Big Splash

Tiffany (TIF US) is an American jewellery company focused on hard luxury items such as jewellery and as well as silver and diamond...

Rickin Thakrar

Coverage Rating Changes on Risks of Corona-Virus in China’s Economy and Financial System

While we are confident that the Chinese authorities and their 40-million population “lockdown” strategy in Hubei province will eventually contain...

JL Warren Capital

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52-week Range

Market Cap (USDm)

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