Bershidsky's View From Europe: Splitting Vivendi
Here's today's look at some of the top stories on markets and politics in Europe.
EU questions multinationals' tax deals.
The European Commission asked the governments of Ireland, Luxembourg and the Netherlands to explain their tax regimes for multinational companies, including Apple and Starbucks. This is not yet a formal probe under European rules against competition-destroying state aid, but a signal that officials in Brussels may be preparing to crack down member states that offer sweet tax deals to large companies that agree to locate their profit centers in these countries. Apple pays as little as a 2 per cent tax in Ireland, and Starbucks has cut its U.K. taxes by lodging its intellectual property rights with a Dutch company. The European Commission has no jurisdiction over tax rates, but if it decides that the tax regimes enjoyed by multinationals constitute unfair state aid, many foreign companies may need to quickly reshuffle their jurisdictions. That, however, is ever more difficult as government toughen rules against offshore schemes.
Vivendi to split into two companies.
Jean-Rene Fourtou and Vincent Bollore, two powerful men vying for control of Vivendi, Europe's biggest media and telecoms company, appear to have made peace by agreeing to speed up the split of Vivendi into two separate groups. After the company sells off its stakes in Maroc Telecom and video game developer Activision, Vivendi will separate into a media company that includes Universal Music Group and Canal Plus, and a telecom operator based on SFR, the French mobile communications company. Fourtou as chairman of Vivendi and Bollore as vice-chairman are to oversee the transition, keeping the interim chief executive Jean-Francois Dubos, whom the company had intended to replace. Vivendi said in a statement that the reorganization was meant "create significant value for shareholders by giving them the opportunity to invest in two well-differentiated vehicles." Translation: to get rid of the discount imposed by the market on a company with no clear logic to its asset structure. A clear strategy is more important for shareholders than size, and that is something on which Fourtou and Bollore agree.
ECB wants Slovenia to request aid for its banks.
According to the German business daily Handelsblatt, the European Central Bank has expressed an interest in Slovenia applying for aid from the European Stability Mechanism, a $660 billion fund set up last year to bail out troubled euro area countries. Slovenia's 18 banks face a capital shortfall of $10 billion, one-fifth of gross domestic product. The government has so far resisted asking for aid. Last week it announced the closure of two banks, Probanka and Factor Banka, but doubts remain that Slovenia will be able to deal with the crisis on its own. On Friday, euro area finance ministers will discuss the nation's troubles at a meeting in Lithuania. Chances are, however, that Slovenia will be able to fix its banking sector without outside resources: it never went in for offshore banking on the same scale as Cyprus, or faced a burst real estate bubble as big as Spain's. The small nation's problems are a consequence of the economic slump that Europe are now leaving behind.
Kingfisher enters German DIY market.
Kingfisher, the world's number three chain of home improvement stores, announced the opening of its first four outlets in Germany, just a week after the bankruptcy of local DIY chain Praktiker. The U.K.-based Kingfisher's German stores will operate under the Screwfix brand, and the company said it would be interested in taking over some of the former Praktiker stores. The German market is notoriously difficult for big retailers because of cutthroat competition for extremely price-conscious customers: even WalMart failed here. Praktiker relied on a deep discount strategy, regularly offering big sales, and in the end could not compete with the market leaders – OBI and Bauhaus. Kingfisher has studied the German market and does not want to compete on price: It hopes to serve artisans and home improvement professionals. In the power tools market, this strategy once famously worked for Black & Decker with the DeWalt brand. German retail needs a similar case study to prove prices are not everything.
Versace looking to sell 20 percent stake.
Italian fashion house Versace is looking for a financial partner to buy up to 20 percent of its stock for $332 million, valuing the entire company at $1.6 billion, 27 times its 2012 core earnings. Versace, whose lavish and provocative style was popular in the 1980's is making a comeback, supported by stars such as Lady Gaga, and needs the money to expand in Asia. All of the company's shares are held by three Versace family members, and the company's valuation clearly harks back to a 2012 deal in which the royal family of Quatar bought the Valentino brand for 31.5 times its core earnings. The mark-up is similar to that on designer clothes: It has more to do with the label than the product. Versace is not likely to sustain the valuation if it ever goes public. For now, news reports say the Emir of Quatar is interested in the stake.
(Leonid Bershidsky, an editor and novelist, is a Bloomberg View contributor. He can be reached at firstname.lastname@example.org).