Daily Update: September 10, 2020

LVMH Moët Hennessy Louis Vuitton said that it would not proceed with its $16.2 billion acquisition of the fine jeweler Tiffany & Co.—a deal planned since November of last year that would have been the largest the luxury sector had ever seen—due to the pandemic’s implications for the global luxury industry and an unusual request of the French government.

The $48 billion luxury goods conglomerate said in a Sept. 9 press release that they came to the decision to scrap the deal following “a succession of events likely to weaken the transaction to acquire Tiffany & Co.,” receiving “a letter from the Minister for Europe and Foreign Affairs who, in reaction to the threat of taxes on French products formulated by the United States, asked the LVMH group to defer the acquisition of Tiffany beyond January 6, 2021,” and “Tiffany's request to extend the deadline for completing the agreement from November 24, 2020 to December 31, 2020.”

“As it stands, the Group LVMH will therefore not be able to complete the acquisition of Tiffany & Co.,” the company said.

In response, U.S.-based Tiffany & Co. filed a 114-page lawsuit in Delaware’s Court of Chancery. aiming to expedite proceedings in advance of the deal’s closing date on November 24 and to secure a ruling that forces LVHM to continue with the deal.

"We regret having to take this action but LVMH has left us no choice but to commence litigation to protect our company and our shareholders," Tiffany Chairman Roger Farah said in a Sept. 9 statement. “We believe that LVMH will seek to use any available means in an attempt to avoid closing the transaction on the agreed terms.”

M&A deals declined approximately 40% year-over-year in the second quarter due to the COVID-19 pandemic, marking the largest drop since 2015, according to S&P Global Market Intelligence. This is the latest abandoned deal in a string of nearly 1,900 that have been canceled, renegotiated, or disputed since the coronavirus pandemic took hold of the global economy.

However, this may be one of the first deals to be called off due to tariff concerns between two allied nations.

In retaliation for a French tax on U.S. technology companies that dealt a blow to Google, Alphabet, and other companies’ operations, the U.S. government threated new tariffs worth $1.3 billion on French luxury products. The 25% tariffs on handbags, cosmetics, and other goods are delayed until January of next year to allow the U.S. and France to reconcile their disagreements. The crux of the issue is a 3% digital tax France holds on companies that provide services and products to French users online, which has led to the deepening trade war.

“I am sure that you will understand the need to take part in our country's efforts to defend its national interests," French Foreign Minister Jean-Yves Le Drian said in an Aug. 31 letter to LVMH chief executive officer Bernard Arnault, according to the English translation of the letter Tiffany & Co. published in an U.S. Securities and Exchange Commission filing.

“The deal cannot happen. We are prohibited from closing the deal,” LVMH finance chief Jean Jacques Guiony said during a conference call with reporters. “It’s a governmental order.”

“The simple facts are that there is no basis under French law for the Foreign Affairs Minister to order a company to breach a valid and binding agreement,” Mr. Farah said in Tiffany & Co.’s statement.

The luxury industry has suffered as the coronavirus pandemic has dampened consumer spending and international travel, during which luxury purchasing typically takes place. Analysts anticipate the luxury goods market will contract anywhere between 20% and 39% in the short term.

After Tiffany & Co.’s worldwide net sales declined 3% in the first half, “the company has already returned to profitability after just one quarter of losses and we expect our earnings in the fourth quarter of 2020 will actually exceed the same period in 2019,” the fine jeweler’s chief executive officer Alessandro Bogliolo said Sept. 9.

The future of the industry may lie in the hands and wallets of wealthy Chinese shoppers, who accounted for roughly 35% of the global personal luxury market last year, according to Bain & Co. and Altagamma. Tiffany & Co. said when reporting second-quarter earnings that its sales performance during the first six months of this year reflected strong growth in mainland China. After the LVMH-owned luxury fashion brand Louis Vuitton showcased its spring/summer menswear collection at a fashion show held in Shanghai in front of a live audience this August, the French company said that it endured a "strong rebound" in China, according to Market Intelligence.

Today is Thursday, September 10, 2020, and here is today’s essential intelligence.

Uncertainty in the Global Economy

COVID-19- And Oil Price-Related Public Rating Actions On Corporations, Sovereigns, And Project Finance To Date

In response to investors' growing interest in the coronavirus pandemic and its credit effects on companies, S&P Global Ratings is publishing a regularly updated list of rating actions S&P Global Ratings have taken globally on corporations and sovereigns, as well as summary table and supporting charts. Also included is a summary of project finance rating actions. These are public ratings where S&P Global Ratings cites the coronavirus pandemic, oil prices, or both as a factor. This information is as of Sept. 7, 2020, unless stated otherwise.

—Read the full report from S&P Global Ratings

Brazil's Big Banks Find Refuge From Pandemic In Agribusiness Lending

Brazil's largest banks are counting on agribusiness lending to help soften the blow of operating in a coronavirus-battered economy that has left other sectors teetering. Agricultural activity has not been as badly hit by the pandemic as other sectors in Brazil, ticking up 0.4% in the second quarter while the economy overall slumped 9.7% year over year, its worst quarterly performance since the country's statistics agency began tracking the figure in 1996.

—Read the full article from S&P Global Market Intelligence

Information Sector Has Best Month Of Net Job Growth For 2020 As Theaters Reopen

In August, the information industry had its best month of employment figures since the pandemic began hitting the U.S., though it still lagged behind many other industries in job growth, data shows. The information sector — which includes the publishing, broadcasting, telecommunications and data processing industries — saw net job gains totaling approximately 15,600 in August, according to preliminary data on employment figures from the U.S. Bureau of Labor Statistics. The number represents the best month of net job growth for the industry for all of 2020.

—Read the full article from S&P Global Market Intelligence

ESG in the Time of COVID-19

Investors Applaud China's Plan To Ban Clean Coal From Green Bond Financing

China's proposal to stop recognizing clean coal as projects qualified for green bonds could attract more interest from foreign investors, as the policy change brings domestic standards closer to the more stringent international definition of green projects. "Clean utilization of fossil fuel," which ranges from coal washing to carbon capture, is excluded from the list of projects eligible for green bond financing, according to a proposal released by the People's Bank of China in May. It did not say when the policy will be implemented. Clean coal projects have always been excluded in green bonds that are certified by international standards.

—Read the full article from S&P Global Market Intelligence

Russia's Novatek Studying Potential For Commercial Hydrogen Production: CFO

Russian gas producer and LNG exporter Novatek is looking into the viability of commercial hydrogen production from methane, its CFO Mark Gyetvay said Sept. 8. Speaking at the Gastech Virtual Summit, Gyetvay said the company had sufficient gas resources to explore the possibility of a large-scale hydrogen project. Producing hydrogen from natural gas in combination with carbon capture and storage -- so-called blue hydrogen -- is seen by gas producers as an efficient way to decarbonize gas. Novatek to date has been focused on conventional gas production and LNG exports, but is now looking at hydrogen too.

—Read the full article from S&P Global Platts

UK Should Focus On Green Hydrogen Opportunity To Integrate Offshore Wind: Report

Developing green hydrogen in the next five years will be critical to growing a significant UK manufacturing and export industry, a new report said Sept. 8. UK demand for hydrogen in 2050 is predicted at between 100 TWh and 300 TWh, of comparable scale to the UK's electricity system today. "With green hydrogen becoming as cheap as blue by the 2030s much of this could be produced by offshore wind and electrolysis," the Offshore Wind Industry Council and ORE Catapult said in the report, Solving the Integration Problem. A combination of additional offshore wind deployment and electrolyzer manufacture alone could create 120,000 jobs, replacing those lost in conventional oil and gas industries.

—Read the full article from S&P Global Platts

Market Growth, Trade Flows Eyed As Hydrogen Reaches Inflection Point

Hydrogen is at its inflection point as governments and the industry step up efforts to embrace the fuel, but expanding use beyond refining and chemicals as well as developing a trading model would be crucial for cargo flows and consumption to take off, industry leaders told the Gastech Virtual Summit. While hydrogen's versatility is attracting interest from governments and companies, there are many challenges -- such as high costs, transportation as well as scaling up production -- that have to be addressed through clear policies, projects and incentives, they added.

—Read the full article from S&P Global Platts

US ELECTIONS: Experts See Renewables Boon, Oil And Gas Headwinds In Biden Win

If Joe Biden wins the White House in November the US could see the largest public and private allocation of capital to renewable energy resources in history along with environmental regulatory rollback reversal that could impact the oil and gas industry, experts said Sept. 8. If President Trump were to lose the upcoming US presidential election, the country would experience the "complete opposite of what we have today in almost every respect in the energy industry," Charles Myers, founder and chairman of political consulting firm Signum Global, said during a web-based discussion hosted by the New York Energy Forum. Biden has proposed the largest infrastructure package in modern history, which includes the largest allocation to renewable energy resources in history, Myers said. And while the fossil fuel industry would not go away under a Biden administration, renewable energy is a "huge priority for Biden," he said.

—Read the full article from S&P Global Platts

The Future of Energy & Commodities

How Biden's Planned Tax Cut Rollback Could Affect Gas, Utilities Sectors

The U.S. oil and gas sector may face a tougher operating environment under a number of Democratic presidential candidate Joe Biden's policy proposals, but his plan to raise corporate taxes is not one of them. The Biden plan calls for raising the corporate income tax rate from 21% to 28%, partially reversing the cut from 35% that President Donald Trump and congressional Republicans secured as part of the federal tax overhaul of 2017. For most U.S. companies, that would result in lower after-tax profits.

—Read the full article from S&P Global Market Intelligence

US ELECTIONS: Biden Win Could Lead To Surge In Iranian Oil Exports By 2022

Iran sanctions relief under a change in US president represents the biggest supply and price impact for global oil markets heading into the November election, with analysts expecting a Biden White House to quickly return to the negotiating table with Tehran. S&P Global Platts Analytics predicts 1.5 million b/d of Iranian exports could return to the market within a year of a new deal that removes US oil sanctions. Rapidan Energy Group sees 1.8 million b/d returning by the end of 2021 under a President Joe Biden, a full year earlier than scenarios for any significant relief if President Donald Trump wins a second term.

—Read the full article from S&P Global Platts

Spotlight: US Oil Production Expected To Decline Once Most Shut-In Volumes Are Back On Production

Compared to S&P Global Platts’ pre-Covid-19 case, US crude and condensate production curtailments peaked in May at 2.8 million b/d with about 1.2 million b/d of shut-ins having come back online already. However, production is expected to resume natural decline starting this Fall due to the very low drilling and completion activity which has reduced horizontal oil rigs by 75% since mid-March, when the oil crisis started. Meanwhile, natural declines from producing wells are taking place and countering, to some extent, the impact of operators bringing wells back online.

—Read the full article from S&P Global Platts

OPEC+ Crude Oil Output Rises In August As Record Cuts Ease: Platts Survey

OPEC and its allies pumped more crude oil in August, led by surges from Saudi Arabia, Russia and the UAE, according to the latest S&P Global Platts survey, adding more supplies to a fragile market uncertain of the global economy's trajectory. OPEC's 13 members produced 24.37 million b/d, a 4% rise from July, while its nine partners, including Russia, added 12.67 million b/d, a 6% increase, the survey found. The higher volumes were not unexpected as the OPEC+ coalition's record 9.7 million b/d production cut accord, implemented during the depths of the coronavirus crisis in May, had been scheduled to ease to 7.7 million b/d for the rest of the year starting in August. As such, the group achieved 97% compliance with its new quotas in the month, according to Platts calculations.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.