European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

<ul>
<li>The Della Valles offer €40/share (1.8 EV/Fwd Sales, c.20% premium) to buy out the minorities (LVMH stays a 10% shareholder). Minimum acceptance condition is 90%, aiming at 60.9% of  float.</li>
<li>Tod's is in turnaround mode (my valuation assumes it'll be successful). A DCF valuation gives €52.21/share, a break-up valuation could reach €57.12/share, while a simpler 2.0x EV/Fwd Sales throws €43.02/share.</li>
<li>The shares trade above the offer and a sweetening may be needed; the offer price seems cheap on any measure. A template could be the acquisition of Creval. Long.</li>
</ul>


The Della Valles offer €40/share (1.8 EV/Fwd Sales, c.20% premium) to buy out the minorities (LVMH stays a 10% shareholder). Minimum acceptance condition is 90%, aiming at 60.9% of  float.
Tod's is in turnaround mode (my valuation assumes it'll be successful). A DCF valuation gives €52.21/share, a break-up valuation could reach €57.12/share, while a simpler 2.0x EV/Fwd Sales throws €43.02/share.
The shares trade above the offer and a sweetening may be needed; the offer price seems cheap on any measure. A template could be the acquisition of Creval. Long.


Della Valle/Tod's: Lowball Minorities Buyout

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<ul>
<li>Market dynamics have mildly deteriorated in recent weeks on concerns over less accommodative monetary policy and the Omicron variant.</li>
<li>Despite recent deterioration, critical supports are holding on the broad global indexes, and our global outlook remains neutral as we continue to expect more consolidation and mixed markets.</li>
<li>Growth continues to outperform relative to value. Actionable Themes: Services, Technology, and Consumer Discretionary.</li>
</ul>


Market dynamics have mildly deteriorated in recent weeks on concerns over less accommodative monetary policy and the Omicron variant.
Despite recent deterioration, critical supports are holding on the broad global indexes, and our global outlook remains neutral as we continue to expect more consolidation and mixed markets.
Growth continues to outperform relative to value. Actionable Themes: Services, Technology, and Consumer Discretionary.


Add To Growth On This Pullback; Actionable Themes: Services, Technology, and Consumer Discretionary

On 22 April, after the market close, <a href="https://www.smartkarma.com/entities/tod-s-spa" target="_blank" data-smartkarma-citation="entities:21231:1" rel="noopener">Tod's SpA (TOD IM)</a> issued a press release which said that Delphine SAS, a subsidiary of <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>, entered into an agreement to acquire an additional 6.8% stake in <a href="https://www.smartkarma.com/entities/tod-s-spa" target="_blank" data-smartkarma-citation="entities:21231:1" rel="noopener">Tod's SpA (TOD IM)</a> from Diego Della Valle &amp; C. S.A.P.A for a total consideration of €74.5 mn.
The 22 April agreement represented at the time 2.2x EV/Fwd Sales and 14.2x EV/Fwd EBITDA,an implied equity value of €1,095 mn and an implied EV of €1,625 mn, and a 11.2% premium to the 1-month WVAP.
On 19 May, Diego Della Valle said said that if he ever decided to sell his company it would be to LVMH's boss Bernard Arnault but he added that he had no current plans to do so. He added that LVMH's recent decision to raise its stake in Tod's was a message "that we like to stay together". He reiterated that if the right opportunity arose, the two groups might "do something together". The shares increased by 3.6% and closed at €48.56. I do not think the family will sell their company that easily when there is a recovery from the pandemic in sight and a new creative director.
Shares enjoyed good momentum after LVMH increased its shareholding in Tod's from 3.2% to 10%, on expectations of an offer by LVMH, but the market seems to have run ahead of itself and the trend may have reversed in the last trading sessions.
In the insight I present a bull (acquisition by LVMH) and a bear case (on valuation grounds, more realistic in my view) for Tod's.
As a standalone entity, Tod's lacks the economies of scale that LVMH enjoys. Without scale, there is a limit as to how much can Tod's shrink its cost structure (procurement of leather and other inputs, marketing and publicity budgets, training of artisans). A best-case scenario valuation would assume an offer from LVMH at an EV 2.0x pre-Covid sales, not expected until 2023e, at least, plus a 15% control premium and some synergies factored in, say 5%, and the valuation would be around €50/share.
At current market prices, Tod's market cap and revenue are respectively &lt;0.5% and 1.5% those of LVMH, hence I do not think that acquiring Tod's is a strategic priority for LVMH in the same way as Tiffany was, nor is it a game changer, no matter how much a successful turnaround of Tod's could achieve in the mid term.
On valuation grounds, Tod's shares do not seem such good value after the recent bull run. A blended average of DCF, WACC 7.8%, terminal growth 1.5%, and 6.8x terminal EBITDA multiple, FCF and EBITDA from capital IQ consensus) and 2.0x EV/22e Sales gives €35.26/share.
<div>
Bernard Arnault, in contrast to the products offered at his stores, likes to buy cheap. His reputation is at stake and the renegotiation of the price tag for Tiffany is a case in point. Tod's does not seem a bargain right now.
Recommendation is short Tod'sTP 35.26/share, a 24% discount to the closing price on 20 May.
</div>
Read across: <a href="https://www.smartkarma.com/entities/salvatore-ferragamo-spa" target="_blank" data-smartkarma-citation="entities:21220:1" rel="noopener">Salvatore Ferragamo (SFER IM)</a> is a similar situation to that of Tod's.

On 22 April, after the market close, Tod's SpA (TOD IM) issued a press release which said that Delphine SAS, a subsidiary of Lvmh Moet Hennessy Louis Vuitton (MC FP), entered into an agreement to acquire an additional 6.8% stake in Tod's SpA (TOD IM) from Diego Della Valle &amp; C. S.A.P.A for a total consideration of €74.5 mn.
The 22 April agreement represented at the time 2.2x EV/Fwd Sales and 14.2x EV/Fwd EBITDA,an implied equity value of €1,095 mn and an implied EV of €1,625 mn, and a 11.2% premium to the 1-month WVAP.
On 19 May, Diego Della Valle said said that if he ever decided to sell his company it would be to LVMH's boss Bernard Arnault but he added that he had no current plans to do so. He added that LVMH's recent decision to raise its stake in Tod's was a message "that we like to stay together". He reiterated that if the right opportunity arose, the two groups might "do something together". The shares increased by 3.6% and closed at €48.56. I do not think the family will sell their company that easily when there is a recovery from the pandemic in sight and a new creative director.
Shares enjoyed good momentum after LVMH increased its shareholding in Tod's from 3.2% to 10%, on expectations of an offer by LVMH, but the market seems to have run ahead of itself and the trend may have reversed in the last trading sessions.
In the insight I present a bull (acquisition by LVMH) and a bear case (on valuation grounds, more realistic in my view) for Tod's.
As a standalone entity, Tod's lacks the economies of scale that LVMH enjoys. Without scale, there is a limit as to how much can Tod's shrink its cost structure (procurement of leather and other inputs, marketing and publicity budgets, training of artisans). A best-case scenario valuation would assume an offer from LVMH at an EV 2.0x pre-Covid sales, not expected until 2023e, at least, plus a 15% control premium and some synergies factored in, say 5%, and the valuation would be around €50/share.
At current market prices, Tod's market cap and revenue are respectively &lt;0.5% and 1.5% those of LVMH, hence I do not think that acquiring Tod's is a strategic priority for LVMH in the same way as Tiffany was, nor is it a game changer, no matter how much a successful turnaround of Tod's could achieve in the mid term.
On valuation grounds, Tod's shares do not seem such good value after the recent bull run. A blended average of DCF, WACC 7.8%, terminal growth 1.5%, and 6.8x terminal EBITDA multiple, FCF and EBITDA from capital IQ consensus) and 2.0x EV/22e Sales gives €35.26/share.

Bernard Arnault, in contrast to the products offered at his stores, likes to buy cheap. His reputation is at stake and the renegotiation of the price tag for Tiffany is a case in point. Tod's does not seem a bargain right now.
Recommendation is short Tod'sTP 35.26/share, a 24% discount to the closing price on 20 May.

Read across: Salvatore Ferragamo (SFER IM) is a similar situation to that of Tod's.

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 SE / 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

Italy

Salvatore Ferragamo SpA is a clothing and accessories company offering shoes, handbags, belts, luggage, ties, scarves, and watches.

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Salvatore Ferragamo (SFER IM)

Della Valle/Tod's: Lowball Minorities Buyout

The Della Valles are presenting an offer to buy out the minorities at Tod's. The offer price seems cheap on any measure now that the turnaround is...

Jesus Rodriguez Aguilar

Add To Growth On This Pullback; Actionable Themes: Services, Technology, and Consumer Discretionary

Growth continues to outperform relative to value, shown by the intact uptrend on the MSCI ACWI ex-US Growth vs. Value ratio. We highlight...

Vermilion Research

LVMH/Tod's: Unlikely Deal for Now

Bernard Arnault, in contrast to the products offered at his stores, likes to buy cheap.Tod's does not seem a bargain right now. SHORT Tod's TP...

Jesus Rodriguez Aguilar

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

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