CDI.PA - Christian Dior SE

[jefke]

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:

 

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]

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?" (

)

 

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:

 

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]

bump

[John Hjorth]

Bum-pe-ti-bump!, fareastwarriors,

 

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

 

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Please take a look here and here.

[jefke]

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]

Follow the money! It's not that hard to do.

[John Hjorth]

jefke,

 

Are you still in on some cooperation [here on CoBF] on the CDI.PA / MC.PA pair? [ I hope you are!]

[jefke]

Hey John, haven't look at this for a while, but still curious to hear your thoughts.

 

Currently in euros, we have:

CDI: 441

MC: 505

 

Before March 2020 CDI traded at a premium. Don't think anything really changed, so most logical explanation (imo) right now is simply liquidity & flow of money.

CDI get sold off harder in March & there's simply way more demand for MC.PA. CDI might have a higher underlying economic value, but big players buying into one of these will buy MC. There's no easy arb, so MC outperforms.

 

My understanding of the squeeze out: Arnault can make an offer. If it's deemed "fair", that's it, you get bought out.

What is the minimum he "has" to offer, what's the minimum that could be considered fair? No clue. Would be nice if he has to pay at least 1.14*(MC share price), but no idea if that will be the case. 

 

The lower price paid for Tiffany made it very clear Arnault won't give you any presents if you're a minority shareholder in CDI.

 

Thoughts?

 

 

 

[John Hjorth]

Thank you for getting back to me here, Jefke,

 

The whole situation with the CDI.PA / MC.PA pair has evolved to be lot more interesting than it was back in May 2020, when you posted about it in the MC.PA topic.

 

I've spent some time on it today. I've found some interesting stuff laying around. To me, understanding the whole situation boils down to the understanding of Mr. Arnault's use of leverage [in I really don't know how many layers as of now - it's somewhat crazy!].

 

I need some time to produce formal records of my today findings . I'll post them here when done.

 

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That said, I'm pretty sure as of now that you're right [still, I need to document it]. Don't get too close to Mr. Arnault.

[jefke]

Gap is closing with CDI.PA at 627 & MC.PA at 639.

Eagerly awaiting your insights, John

[John Hjorth]

I apologize for a very late reply here, jefke,

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To start with an angle based on humor:

Today, I think that LVMH is actually an abbreviation for : "Lofty - very much! - heights"! [ ; - D ]

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In short: It's now an undeniable fact, that I've missed out BIG [but still done well, - at least so far] on this one [be it CDI.PA or MC.PA], by suspending my avage-in plan on this investment during the pandemic. I simply did not have the balls to continue [I had the cash available to do so] - It's that plain simple. All "explanations & excuses" omitted here. - Period.

So, there is no way right now for me continue buying, before the financials for 2021H1 are available [, likely in August 2021, be it CDI.PA or MC.PA] - quarterly reporting for Q1 & Q3 are only about turnover.

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So, here I am with this. I'm 62 years old. Not actually the case at all, but imagine I have dentures in both the upper and lower part of my mouth, and have taken them out, while posting this, then you get some picture of me, when I'm thinking about this. [Wrinkled chicken butt all over it! - *sigh*]

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Now back to Mr. Arnault.

There is no standstill for Mr. Arnault, - he's always up to something, - to me, for him, it's just a never ending process of changes, restructurings, raids, acqusisitions, integrations & financing arrangements [, all with the purpose to get ahead], until he choses to retire or he passes away.

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Mr. Arnault has been quite active recently, in his whole sphere - in the "superstructure above" CDI.PA & MC.PA.

When we invest alongside controlling shareholders, who also are operators, it's imperative also to keep an eye on "the superstructure" of our investment, when possible. It actually is - to some extent - here.

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To me, the key legal entities to observe here are :

Formerly Arnult Family Group SECDS [now Agache SE]["black box" - no website - no information, other than what you can read from the financials of CDI.PA & MC.PA], &

Financiére Agache : Website .

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If you visit the Financiére Agache website, you'll find a public buyout offer followed by a  squeeze-out procedure for the remaining shares of Financiére Agache, dated April 28^th 2021 - 2,189 shares at EUR 44,000 ~ EUR 96.3 M.

Now what does this tell us, and what questions does this tender offer rise to us?

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Attached is the tender offer translated to English.

Agache Investments.pdf

Edited May 5, 2021 by John Hjorth