European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

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<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

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.
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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.
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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.

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. 

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Equity Bottom-Up

Italian shoe and handbag maker <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> has been discussed as a takeover target for LVMH since 2017. See my previous insights in 2017, 2018, and 2019 for background.Yesterday, LVMH made its opening salvo raising its stake to 10% by acquiring 2,250,000 shares at 33.10 EUR per share (total value of 74.5 million EUR) from founder Diego Della Valle who will still control 63.64% after the transaction. Please note that Diego Della Valle is also a board member at <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>.Tod's is in the early innings of potential brand revival having added 33-year old influencer Chiara Ferrangi to its board of directors earlier this month. Chiara has 23 million followers on Instagram alone.This follows news of Tod's appointing 42-year old Walter Chiapponi as its head designer in late 2019. Tod's goal is to try and push Tod's brand into the millenial "cool" bucket and revive sales after years of declines.The long-term age of Della Valle (67) means LVMH will acquire the brand outright in FY22/FY3. Before this happens Della Valle will attempt to maximize value for himself one last time.Tod's market cap has shriveled to 1.2 billion EUR (from 4.8 billion in 2013) which means it trades at just 1.5x P/S, 1.2x P/B, and 11x FY22 EV/EBITDA. P/S and EV/EBITDA are the right metrics here as weak execution and heavy investment in company-operated stores have meant the company was printing red-ink for the last three years. Luxury brands typically get sold between 15-20 EV/EBITDA.For Della Valle to sell his life's work it will require a much larger premium by LVMH to get his remaining shares. As highlighted in my 2019 insight large upside remains for Tod's minority shareholders from today's share price levels.

Italian shoe and handbag maker Tod's SpA (TOD IM) has been discussed as a takeover target for LVMH since 2017. See my previous insights in 2017, 2018, and 2019 for background.Yesterday, LVMH made its opening salvo raising its stake to 10% by acquiring 2,250,000 shares at 33.10 EUR per share (total value of 74.5 million EUR) from founder Diego Della Valle who will still control 63.64% after the transaction. Please note that Diego Della Valle is also a board member at Lvmh Moet Hennessy Louis Vuitton (MC FP).Tod's is in the early innings of potential brand revival having added 33-year old influencer Chiara Ferrangi to its board of directors earlier this month. Chiara has 23 million followers on Instagram alone.This follows news of Tod's appointing 42-year old Walter Chiapponi as its head designer in late 2019. Tod's goal is to try and push Tod's brand into the millenial "cool" bucket and revive sales after years of declines.The long-term age of Della Valle (67) means LVMH will acquire the brand outright in FY22/FY3. Before this happens Della Valle will attempt to maximize value for himself one last time.Tod's market cap has shriveled to 1.2 billion EUR (from 4.8 billion in 2013) which means it trades at just 1.5x P/S, 1.2x P/B, and 11x FY22 EV/EBITDA. P/S and EV/EBITDA are the right metrics here as weak execution and heavy investment in company-operated stores have meant the company was printing red-ink for the last three years. Luxury brands typically get sold between 15-20 EV/EBITDA.For Della Valle to sell his life's work it will require a much larger premium by LVMH to get his remaining shares. As highlighted in my 2019 insight large upside remains for Tod's minority shareholders from today's share price levels.

Tod's: LVMH Goes from 3.3%-> to 10%; 100% Next Year?

Italian luxury shoemaker Tod's reported 23 quarters of consecutive negative SSSG, has seen its share price fall from 142 EUR to 46 EUR during the last six years and is universally hated by sell-side analysts (16 sell ratings, 4 hold ratings, and 0 buy ratings). During 1H19 sales declined for all its brands, across all regions except China and it recorded its first loss since its IPO nearly 20 years ago. Despite this poor operational performance, the share price is up 11% YTD.Among all the negativity one man strongly believes in the brand. He is the founder and main owner of the company: Diego Della Valle. As first communicated in December 2018 he has continued to increase his stake in the company via insider purchases and has indicated he will continue to do so as long as the share price is depressed. Long-term shareholders in Tod's are awarded higher voting rights which means Della Valle owns 64% of the company shares but has over 81% of the voting rights. An investment in Tod's is, more than ever before, a bet on the Della Valle family.Diego is currently 65 years old and virtually his entire net worth is tied up in Tod's stock. It is possible that Delle Valle is on a self-destruction mission and is misjudging the chances to revive Tod's brand. As shareholders, this is the risk of buying Tod's today. The upside is that Della Valle will look out for himself and 1) either he succeeds in turning around Tod's by 2020 or 2) he realizes the turnaround will not work and he will sell Tod's to the highest bidder. Given the depressed enterprise value of the company (2 billion EUR), there should be ample buyers for the brand. <a href="https://www.smartkarma.com/entities/lvmh-moet-hennessy-louis-vuitton" target="_blank" data-smartkarma-citation="entities:21072:1" rel="noopener">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a> remains in pole position to acquire the brand given Bernard Arnault already owns 3.46% of the company.We see virtually no downside (unless financials continue to decline drastically), +50% upside in an earnings recovery story (see my insight from 2017 for details) and 40-70% upside in an M&amp;A scenario.

Italian luxury shoemaker Tod's reported 23 quarters of consecutive negative SSSG, has seen its share price fall from 142 EUR to 46 EUR during the last six years and is universally hated by sell-side analysts (16 sell ratings, 4 hold ratings, and 0 buy ratings). During 1H19 sales declined for all its brands, across all regions except China and it recorded its first loss since its IPO nearly 20 years ago. Despite this poor operational performance, the share price is up 11% YTD.Among all the negativity one man strongly believes in the brand. He is the founder and main owner of the company: Diego Della Valle. As first communicated in December 2018 he has continued to increase his stake in the company via insider purchases and has indicated he will continue to do so as long as the share price is depressed. Long-term shareholders in Tod's are awarded higher voting rights which means Della Valle owns 64% of the company shares but has over 81% of the voting rights. An investment in Tod's is, more than ever before, a bet on the Della Valle family.Diego is currently 65 years old and virtually his entire net worth is tied up in Tod's stock. It is possible that Delle Valle is on a self-destruction mission and is misjudging the chances to revive Tod's brand. As shareholders, this is the risk of buying Tod's today. The upside is that Della Valle will look out for himself and 1) either he succeeds in turning around Tod's by 2020 or 2) he realizes the turnaround will not work and he will sell Tod's to the highest bidder. Given the depressed enterprise value of the company (2 billion EUR), there should be ample buyers for the brand. Lvmh Moet Hennessy Louis Vuitton (MC FP) remains in pole position to acquire the brand given Bernard Arnault already owns 3.46% of the company.We see virtually no downside (unless financials continue to decline drastically), +50% upside in an earnings recovery story (see my insight from 2017 for details) and 40-70% upside in an M&amp;A scenario.

Tod's: Della Valle Family Ups Insider Buying to 64% Ownership; LVMH Remains Logical Final Stop

Almost one year ago I highlighted the attractiveness of Italian luxury shoemaker Tod's in following insight <a href="https://www.smartkarma.com/insights/tod-s-not-likely-a-standalone-business-for-much-longer-lvmh-is-a-logical-buyer" target="_blank" data-smartkarma-citation="insights:15235">Tod's: Not Likely a Standalone Business For Much Longer; LVMH Is a Logical Buyer</a>. My analysis showed that the company would either: a) succeed in its turnaround under new management or b) be acquired by a larger luxury conglomerate such as <a href="https://www.smartkarma.com/entities/21072" target="_blank" data-smartkarma-citation="entities:21072:1">Lvmh Moet Hennessy Louis Vuitton (MC FP)</a>.
Last week, an Italian newspaper reported on some interesting developments which make the second scenario of a trade sale more plausible. While the company has come out and denied the speculation the underlying trend of smaller luxury brands being absorbed by larger conglomerates is unstoppable as recently highlighted by the sale of Versace to Michael Kors for 2.1 billion USD.
Tod's, as an independent company, remains on its last legs and shareholders will benefit significantly in any M&amp;A scenario. Risk/reward therefore remains highly attractive.

Almost one year ago I highlighted the attractiveness of Italian luxury shoemaker Tod's in following insight Tod's: Not Likely a Standalone Business For Much Longer; LVMH Is a Logical Buyer. My analysis showed that the company would either: a) succeed in its turnaround under new management or b) be acquired by a larger luxury conglomerate such as Lvmh Moet Hennessy Louis Vuitton (MC FP).
Last week, an Italian newspaper reported on some interesting developments which make the second scenario of a trade sale more plausible. While the company has come out and denied the speculation the underlying trend of smaller luxury brands being absorbed by larger conglomerates is unstoppable as recently highlighted by the sale of Versace to Michael Kors for 2.1 billion USD.
Tod's, as an independent company, remains on its last legs and shareholders will benefit significantly in any M&amp;A scenario. Risk/reward therefore remains highly attractive.

Tod's: After Sale of Versace to M. Kors One of Few Luxury Companies Remaining; LVMH Is Likely Buyer

Italy

Tod's S.p.A. is an Italian luxury fashion company that creates, produces, and distributes high-quality shoes, leather goods, accessories, and apparel. The company offers its products through directly operated stores, e-commerce channels, franchised retail outlets, and selected independent multi-brand stores under brands like TOD'S, HOGAN, FAY, and ROGER VIVIER. Tod's was founded in 1920 and is headquartered in Sant'Elpidio a Mare, Italy.

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Tod's (TOD 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

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

Tod's: LVMH Goes from 3.3%-> to 10%; 100% Next Year?

Tod's as a standalone company is on its last legs. Della Valle will attempt his final push to revive the brand with influences Chiara Ferragni on...

Nicolas Van Broekhoven

Tod's: Della Valle Family Ups Insider Buying to 64% Ownership; LVMH Remains Logical Final Stop

Italian luxury shoemaker Tod's reported 23 quarters of consecutive negative SSSG, has seen its share price fall from 142 EUR to 46 EUR during the...

Nicolas Van Broekhoven

Tod's: After Sale of Versace to M. Kors One of Few Luxury Companies Remaining; LVMH Is Likely Buyer

Almost one year ago I highlighted the attractiveness of Italian luxury shoemaker Tod's in following insight Tod's: Not Likely a Standalone Business...

Nicolas Van Broekhoven

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