Author Topic: TIF - Tiffany & Co  (Read 9165 times)

Cigarbutt

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TIF - Tiffany & Co
« on: March 23, 2020, 10:20:58 AM »
This is one for those adept at picking dollar bills in front of steam rollers.
Disclosure: I've done about 10 or so of such 'deals' with a small favorable outcome in all but i'm not wired for these and fully expect to have one loss eventually wipe out all gains realized over time. If the market enters a withdrawal episode, a high enough degree of conviction may trigger a very small position.

LVMH
-wants to buy at 135 and shares trade now at a level corresponding to the previous offer
-have secured financing with favorable terms and pretty much back-stopped by large entities ready to do whatever it takes
-officially reported that they will not use the pandemic to take advantage of the situation...
-is buying this (the brand, the box, even the color) for the long haul (a diamond is forever mentality)

The negatives:
-Mr. Buffett has passed on this acquisition (apparently) and bet on the debt in 2009.
      -this objection can be mitigated by the fact that Mr. Buffett does not tend to become intimately (equity) involved when "improvements" need to be made to the business (unlike Mr. Arnault)
-***LVMH may want to play Atlas Shrugged and then we're looking into the abyss, in terms of where TIF could trade under present circumstances

A big underlying question is: are we going through a scare, a fundamental SHIFT or somewhere in between?


ukvalueinvestment

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Re: TIF - Tiffany & Co
« Reply #1 on: March 23, 2020, 10:23:15 AM »
Can you talk a bit about pricing.  Where is the bid, where was Tiffany trading pre bid, what's risk/reward.  What is fair value for Tiffany.
@ukvalueinv

John Hjorth

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Re: TIF - Tiffany & Co
« Reply #2 on: March 23, 2020, 10:32:42 AM »
LVMH Press Release [March 23rd 2020] :

Quote from: LVMH
Rumors circulated recently indicating that LVMH would consider buying Tiffany shares on the open market.

These rumors lead LVMH to recall that, in accordance with the agreement concluded with Tiffany in November 2019, LVMH is currently committed not to buy Tiffany shares.
”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

Cigarbutt

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Re: TIF - Tiffany & Co
« Reply #3 on: March 23, 2020, 11:10:22 AM »
@ukvalueinvestment
First, an admission: when I see your user name, I keep 'seeing' ukuleleinvestment and something tells me that this is not the kind of joke you want to hear.  :)
TIF has a history of irregular earnings and varying market perception about its value. I think the value is worth more in Mr. Arnault's hands (synergies and vision). The typical multiples used (historical and variable) are EV/EBITDA of 12-14 and PE of about 25. I tend to make my money in low end stuff and would not typically pay such high multiples, even in luxury industry stocks. The "fair value" estimate below is based on a reasonable normalized value as could have been perceived by the market before LVMH and CV showed up.

-"Rumor" of a bid at 120, Oct 27, 2019
share price before: 98.55
share price after: 122.94

-"confirmed bid" at 135, Nov 25, 2019
share price before: 125.51
share price after: 133.25

-estimate of FV before "rumor": 80-100

"what's risk/reward?": That's what I'm working on now.

@John
Is this value investing?  ::)

John Hjorth

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Re: TIF - Tiffany & Co
« Reply #4 on: March 23, 2020, 01:14:01 PM »
Cigarbutt & ukvalueinvestment,

This appears certainly to be an interesting proposition. Trading today at 121 - 122 right now. I'll need to dig up the TIF/LVMH merger/takeover agreement tomorrow for further study tomorrow, to discuss further in this topic.
”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

minten

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Re: TIF - Tiffany & Co
« Reply #5 on: March 23, 2020, 01:28:50 PM »
TIF traded up significantly last week because of a a rumour LVMH was looking to buy shares on the open market. Today LVMH denied they were interested in doing this, so shares traded down again.

In general, merger arb spreads have exploded all over these last few weeks. Market seems to think virtually every merger will fail (and who knows, the market might be right). This one looks pretty safe though.

John Hjorth

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Re: TIF - Tiffany & Co
« Reply #6 on: March 23, 2020, 01:35:28 PM »
Agreed, minten,

It's about reading the agreement with special focus on existing cat flaps related to the evolution in circumstances between now and at the time of the entering into the agreement.
”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

writser

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Re: TIF - Tiffany & Co
« Reply #7 on: March 23, 2020, 01:45:50 PM »
-estimate of FV before "rumor": 80-100

Of course that is also the estimate of FV before "world going in lockdown". It's probably lower now, right? LVMH is down ~25% in the same timeframe and TIF is probably even more affected.

Last week TIF was much more attractive (traded around $110 at some point, or 20%+ upside vs. ~10% now). Unfortunately it wasn't really on my radar at the time (I know, easy to say in hindsight. Who knows if I had pulled the trigger .. ). Rumors are now that Citadel had to liquidate a large position.

Still, it's an interesting situation. Arnault is probably not too easily swayed by the short term. And he can cough (no Corona pun intended) up the cash.

On the flip side, in the current market a 10% spread isn't that much. Is TIF with 10% upside much more attractive than BREW with 25% upside? Or IOTS with 33% upside? Or RESI, KEM, TCO, GCAP, TECD, CORV, .. ? All reasonable mergers trading with 25%+ upside.

Lawyers will have a great time debating whether a pandemic is a just cause to terminate a merger agreement. An interesting read:

https://clsbluesky.law.columbia.edu/2020/03/19/coronavirus-is-becoming-a-majeure-headache-for-pending-corporate-deals/

Quote
And that observation brings us to a final prediction, which our analysis permits us to state with some degree of confidence: If you are an M&A litigator on either the plaintiff or defendant side (and you remain healthy over the next few months), your timing couldn’t be better.
« Last Edit: March 23, 2020, 01:47:57 PM by writser »
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@thewritser

Cigarbutt

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Re: TIF - Tiffany & Co
« Reply #8 on: March 23, 2020, 05:08:10 PM »
-estimate of FV before "rumor": 80-100
Of course that is also the estimate of FV before "world going in lockdown". It's probably lower now, right? LVMH is down ~25% in the same timeframe and TIF is probably even more affected.
...
Lawyers will have a great time debating whether a pandemic is a just cause to terminate a merger agreement. A very interesting read:
https://clsbluesky.law.columbia.edu/2020/03/19/coronavirus-is-becoming-a-majeure-headache-for-pending-corporate-deals/
...
The FV that matters is the one you meet when you sell if the deal fails. I assume the deal is closing within 3 or 4 months. Now, based on a few relative comparables (Pandora, Signet and other 'luxury' retailers; LVMH is more resilient), the invisible 'FV' is down 50%+ (using the same time frame). It would be reasonable though (most likely scenario) to assume that market value would gravitate to longer term visible 'FV' of 80-100 + time value within a year or two. If you can live holding TIF for that long.

Read the following at your own risk. The article is interesting. Force majeure has its origin in Roman Law but was codified in 1804 French Code Civil (Napoléon was not a complete jerk). The initial fundamental criteria have remained: the event must be 1) unpredictable, 2) uncontrollable (cannot be avoided or mitigated) and 3) external (not the fault of the party). Over time, the sanctity of contracts has been questioned but there's been resistance to exonerate parties although lawyers who can formulate cheesy or colorable arguments can have a field day. One would have to look at the specific documents (content and wording) and I'm not an expert but it seems that LVMH, as a competent party, should have been able to foresee (criteria 1) the possibility of a pandemic (perhaps similar to a severe global recession etc). They could have a case if the pandemic risk was specifically mentioned in the legalese as an inescapable proviso. I doubt it given the tone and content of today's press release.

Dalal.Holdings

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Re: TIF - Tiffany & Co
« Reply #9 on: March 23, 2020, 07:23:41 PM »
-estimate of FV before "rumor": 80-100

Of course that is also the estimate of FV before "world going in lockdown". It's probably lower now, right? LVMH is down ~25% in the same timeframe and TIF is probably even more affected.

Last week TIF was much more attractive (traded around $110 at some point, or 20%+ upside vs. ~10% now). Unfortunately it wasn't really on my radar at the time (I know, easy to say in hindsight. Who knows if I had pulled the trigger .. ). Rumors are now that Citadel had to liquidate a large position.

Still, it's an interesting situation. Arnault is probably not too easily swayed by the short term. And he can cough (no Corona pun intended) up the cash.

On the flip side, in the current market a 10% spread isn't that much. Is TIF with 10% upside much more attractive than BREW with 25% upside? Or IOTS with 33% upside? Or RESI, KEM, TCO, GCAP, TECD, CORV, .. ? All reasonable mergers trading with 25%+ upside.

Lawyers will have a great time debating whether a pandemic is a just cause to terminate a merger agreement. An interesting read:

https://clsbluesky.law.columbia.edu/2020/03/19/coronavirus-is-becoming-a-majeure-headache-for-pending-corporate-deals/

Quote
And that observation brings us to a final prediction, which our analysis permits us to state with some degree of confidence: If you are an M&A litigator on either the plaintiff or defendant side (and you remain healthy over the next few months), your timing couldn’t be better.

Yeah, the drop in TIF to 110s was due to Citadel liquidating a departed trader's position:
https://nypost.com/2020/03/20/ken-griffins-fund-citadel-drove-shocking-drop-in-tiffany-shares/

LVMH had to work hard to sweeten its offer for TIF (a long, proud history as an American luxury fashion brand). They must be aware that if they back out now, TIF may never be available for them again. I think the odds are in holders of TIF's favor.

LVMH already raised significant amt of cash at very attractive terms to take out TIF:
https://www.bloomberg.com/opinion/articles/2020-02-07/louis-vuitton-gets-help-from-the-ecb-for-16-billion-tiffany-deal

Quote
Two of the five euro tranches were placed at negative yields, meaning investors are paying single A-rated LVMH to borrow money. Arnault’s expectations back in November for yields from the sale of “between 0% and 1%” have been surpassed. Even the 11-year tranche has a coupon of just 0.45%. M&A has never been cheaper.
« Last Edit: March 23, 2020, 07:26:47 PM by Dalal.Holdings »