Author Topic: CDI.PA - Christian Dior SE  (Read 1312 times)

jefke

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CDI.PA - Christian Dior SE
« on: June 26, 2020, 11:09:26 AM »
Christian Dior looks like an interesting way to potentially own MC.PA aka LVMUY / LVMH at a discount. I'll leave the discussion for the attractiveness of investing in the underlying this thread: https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/lvmuy-lvmh-louis-vuitton-moet-hennessey/

I posted the following in the LVMH thread at the beginning of May:

Quote
Has anyone done any work on owning the stock through Dior (CDI.PA)? My interest was peaked as CDI always seemed to trade at a premium to MC.PA (= LVMH), but this switched to a discount at the peak of corona panic in March.

Having a hard time to find the exact corporate structure as Dior only seems to have annual reports in French, making it not easy to see the potential discount.

Where I'm at so far:

Dior is how the Arnault family hold most of their MC.PA shares. Dior holds 41% of MC shares and 56.8% of the voting rights.

At 180m Dior shares outstanding & 503m MC shares, there's about 1.145 share of MC (or LVMH) per share of Dior.

1) Any debt or net cash at CDI level?
Having a hard time figuring this out with no clear overview in the French annual report.

I looked at consolidated Dior numbers from their annual report and seem to have about 390m more cash for CDI, but also some extra borrowings which more or less cancel the cash out. There's 400m less of a deferred tax liability at CDI level. Other than that, i'm confused by slightly lower asset values on the CDI consolidated balance sheet. What causes this?

2) A holdco comes at a price. And based on some googling there seems to be 1-5% tax leakage when CDI receives the LVMH dividends.

3) That said, CDI seems to be willing to hand out extra cash and had an extra dividend in Dec 2019 for a total of €34 share compared to €4.8 for LVMH if I'm correct? In 2018 there was the same pay out for both companies.

=> based on my research, seems like there's no extra debt at CDI level, while having an underlying value of 1.14 LVMH share per CDI share.

Currently they both trade at €335. So by buying CDI, you currently buy LVMH at a discount. And if CDI keeps paying out that cash, you'll receive a higher dividend yield over time.

4) Historical prices in €

May 20 2019: MC: 336.5 & CDI : 431 (before CDI returned about €29 extra per cash that MC didn't)
Feb 2 2020: MC: 415 & CDI: 440
March 16 2020: MC: 311 & CDI : 265.6
May 4 2020 : MC: 335.45 & CDI : 335.2

RISKS
There's usually a way to get burned if you want to be too clever and get a discount on an underlying asset instead of just buying the underlying asset.

I guess there's a chance that at some point CDI does something that's less friendly vs the minority shareholder?

(Thoughts & feedback welcome. I'm just a rookie in the investment game. Might have made mistakes. Feedback highly appreciated!)

Update:
June 26: MC: 387.7 & CDI : 373.8


jefke

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Re: CDI.PA - Christian Dior SE
« Reply #1 on: June 26, 2020, 11:27:28 AM »
I got interested in the name when it crashed deeper in March than LVMH, while it seems like it traded at a premium before.

Today, I saw this pop up on Twitter:

"What is the reason for Dior's lagging performance vs LVMH?" (https://twitter.com/DantonQu/status/1276446289908162561)

One of the replies: "Because French squeeze-out rules."

"Maybe, but it did take 2.5 years after Arnault had 95%+ of the shares for the premium to close and turn negative"

So how do French squeeze outs work?
https://www.ibanet.org/Document/Default.aspx?DocumentUid=50A38E63-2CA7-4CA4-8BDC-8F87AFA5CAF7

What seemed relevant to me:

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Squeeze-Outs may now follow any type of public offers provided that only 5% or less of the share capital and the voting rights of the target company remain in the free float.

A Squeeze-Out may only be carried out:
- within a three-month period starting from the closing of the preceding offer;
...
- only if the bidder has clearly stated its intention to exercise a potential Squeeze-Out right upon the filing of the preceding offer. ... will require that the independent expert confirms in an additional report that the offer price will also provide a fair compensation for the evicted shareholders.
...
-Unless the preceding offer is a takeover bid, before the implementation of a Squeeze-Out, an independent expert appointed by the board of directors of the target company must deliver an opinion regarding the fairness of the offer price not only in the context of the proposed offer but also as compensation for the expropriated securities holders.

Arnault initially gained control of Dior in 2017, offering €260 per share (15% premium). Got less than 95% back then, but has built up his stake in the meantime.

If I understand what I read correctly (but I'm just a random guy on the internet with little investing experience, so feel free to correct me!):
- Arnault can launch an offer for the remaining CDI shares & say he wants to go for the squeeze-out afterwards
- He already owns 95%+, so squeeze-out will always get triggered
- An independent expert needs to judge the fairness of the offer. That seems to be the only thing that can protect minority shareholders.

I feel silly about not really considering the squeeze-out when I initially posted about Dior in May. I guess it's one of these things you don't really pay attention to as a rookie, but you'll pay extra attention to it for the rest of your life once you get screwed just one single time this way.



fareastwarriors

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Re: CDI.PA - Christian Dior SE
« Reply #2 on: July 16, 2020, 10:12:07 AM »
bump

John Hjorth

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Re: CDI.PA - Christian Dior SE
« Reply #3 on: July 16, 2020, 10:21:25 AM »
Bum-pe-ti-bump!, fareastwarriors,

I'm sorry for a very late post here [I can't keep up because of IRL!]

- - - o 0 o - - -

Please take a look here and here.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai

jefke

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Re: CDI.PA - Christian Dior SE
« Reply #4 on: July 17, 2020, 01:13:26 AM »
Also eagerly awaiting replies from others :D

I had a look at John's links but didn't really see anything that made me go "aha, this is what he's talking about".

I guess with CDI you run the risk that they stop paying out dividends & keep the money inside CDI. Either keep it in there for generations or get it out in other ways (remuneration for board members).

John Hjorth

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Re: CDI.PA - Christian Dior SE
« Reply #5 on: July 17, 2020, 04:52:59 PM »
Follow the money! It's not that hard to do.
”In the race of excellence … there is no finish line.”
-HH Sheikh Mohammed Bin Rashid Al Maktoum, Vice President and Prime Minister of the United Arab Emirates and Ruler of Dubai