LVMH Reviews Tiffany Deal Amid Coronavirus

French luxury-goods titan Bernard Arnault is reviewing his $16 billion deal to buy U.S. jeweler Tiffany (NYSE:TIF) & Co., according to a person familiar with the matter, after the coronavirus pandemic upended the industry. Mr. Arnault convened a board meeting of LVMH (PA:LVMH) Moët Hennessy Louis Vuitton SE, the luxury-goods company he controls, to discuss the purchase. The board “notably focused its attention on the development of the pandemic and its potential impact on the results and perspectives of Tiffany & Co.,” LVMH said. LVMH paid close to Tiffany’s all-time-high share price to acquire the company in November. Months later, the emergence of the coronavirus sent the luxury-goods market plummeting. Tourist shoppers, the industry’s lifeblood, have been forbidden from traveling, depriving boutiques of their most lucrative customers. The outbreak of protests last week against police violence in the U.S., in which some high-end shopping areas were hit by looting and vandalism, has only given Mr. Arnault more reason to question the transaction, analysts say. Now, Mr. Arnault is likely searching for ways to renegotiate the hefty price he is paying for Tiffany, analysts say, given that the luxury-goods market is facing a prolonged slump. One lever available to him would be the risk of Tiffany breaching its bond covenants, under which the company’s ratio of debt to earnings must stay below certain thresholds.

After strong gains so far this week, the SMI slumped 1.1 percent to 10,076 points Thursday, at one stage hitting 10,024 points amid heavy profit-taking. A temporary recovery came in the afternoon as the European Central Bank (ECB) announced it had increased its Pandemic Emergency Purchase Programme (PEPP) by EUR 600 billion to EUR 1.350 trillion, and said the PEPP would run until it deemed the crisis over. The ECB also said it expected the eurozone economy to shrink by 8.7 percent in 2020, with a weak recovery in 2021 and 2022. Insurers, which had been in high demand earlier in the week, were initially sold off, but recovered somewhat later. Swiss Re closed up 0.5 percent and led the SMI along with Swisscom (SIX:SCMN), which gained 0.8 percent. Zurich Insurance (SIX:ZURN) fell 0.5 percent and Swiss Life 0.8 percent. UBS (SIX:UBSG) slid 1.5 percent and Credit Suisse (SIX:CSGN) 1.1 percent. Leading the sell-off was Lonza (SIX:LONN), which fell 1.9 percent. Roche (SIX:RO), SGS and Alcon also took a beating. Index heavyweight Nestle (SIX:NESN) slid 1.1 percent.

European stocks declined as the European Central Bank announced a bigger-than-expected expansion of its coronavirus bond-buying program and warned the eurozone economy faces an unprecedented contraction this year. The Stoxx Europe 600 fell 0.7%, the FTSE 100 dropped 0.6%, the DAX shed 0.5% and the CAC-40 edged down 0.2%. The ECB said it would add EUR600 billion to its pandemic emergency purchase program as it predicted the economy would shrink 8.7% in 2020. "The eurozone had major structural problems going into this crisis -- high unemployment and high debt -- so there is a view in the markets the ECB will remain on the easing path for some time to come," an analyst said. Spirits maker Rémy Cointreau rallied 10% as the company said it expects a strong second half of the year and presented its longer-term goals that include an operating margin of 33% by 2030. Its fiscal year ending March profit slumped 29% on a 21% operating margin. Lookers shares rose nearly 9% as the U.K. and Ireland car dealership chain said it would cut up to 1,500 jobs. Separately, U.K. car sales plunged 89% in May, a trade group reported.

U.S. stocks edged lower intraday in a choppy trading session as investors tried to weigh their optimism about the re-opening of the economy against fresh data that showed the pandemic's continued toll. The Dow Jones Industrial Average tumbled 156 points, or less than 0.6%, in afternoon trading, dragged down by losses in stocks ranging from Microsoft (NASDAQ:MSFT) to UnitedHealth Group to Nike (NYSE:NKE). A rally in heavyweight Boeing (NYSE:BA) helped mitigate the losses that the other indexes suffered. The S&P 500 slipped 1%, on track to break a four-session winning streak. The Nasdaq Composite fell 1.2%, pulled down by declines in shares of mega-cap technology companies. U.S. stocks rallied earlier in the week, despite the social unrest that has gripped the country since the death of George Floyd, a black man, who died in Minneapolis in police custody. Traders had instead focused on promising signs of an economic recovery, as well as optimism that global economies could see more stimulus measures.

Japanese stocks were lower, weighed by falls in electronic and pharmaceutical stocks, as concerns persisted about the lasting economic impact of the Covid-19 pandemic. Hong Kong shares were also lower in morning trade, with the market quickly reversing opening gains after days of consecutive advances. Mainland China stocks were slightly higher in early trade, with the markets on track to sustain consecutive gains for over a week.

The yield on the 10-year U.S. Treasury note rose to 0.804%, from 0.761% Wednesday. The bond-market selloff this week took a breather as the European Central Bank said that it would leave rates unchanged and expand its asset purchases by another EUR600 billion to a total of EUR1,350 billion. The ECB also said its bond-buying would extend to run at least through the end of June 2021. 

Citi raises Adidas (DE:ADSGN) target to 290 (245) EUR - Buy
HSBC raises Lufthansa (DE:LHAG) target to 5,75 (5) EUR - Reduce
IR raises Hochtief target to 106 (85) EUR - Buy
IR downgrades Qiagen target to Sell (Hold) - Target 39 EUR

Produced by MBI Martin Brückner Infosource GmbH & Co. KG on behalf of Swissquote. All news is acquired with journalistic accuracy. No liability is assumed for delays or errors.