Wall Street is complaining: the details on the role payed by the European Central Bank in the operation that led LVMH to purchase Tiffany is irritating the US-based financial community. The first to brak this news was Bloomberg, stating that “France’s richest man was helped by the ECB”. Why? “Because the corporate bonds emitted by LVMH to buy Tiffany ended up being less costly than Mr. Arnault could have ever hoped for”.
Wall Street is unhappy
Online news source Zerohedge adds to the accusation: “The ECB helps France’s richest man in getting even richer”. According to the reconstruction of the events, the acquisition operation ended up being way more convenient for Arnault than he expected: “When he offered 16 billion for Tiffany he knew he would have had to emit a 10 billion USD bond to finance the operation – reads Zerohedge -. He also knew it wouldn’t have been a problem, as the ECB was going to help. But even Mr. Arnault couldn’t have imagined this bond was going to end up paying part of his income”.
These are some stock-related technicisms, but it’s worth getting a better understanding of the issues. LVMH emitted a 7.5 billion euro bond, along with a 1.55 billion UK pounds bond to purchase Tiffany: the owed amounts can be paid anywhere between 2 an 11 years. The difference is made by the rate: “the bonds are very convenient for billionaire Arnault – summarizes Italia Oggi -, as they were expected to have a rate of between 0% and 1%, at the end, both were emitted at negative rates. Simply put, investors who bought the bonds paid Mr. Arnault to borrow money (as it would happen with negative interest rates for banks)”. What does the ECB have to do with it? It made the deal possible by purchasing the bonds directly (up to 20%), thank to the “189 billion-euro Corporate Sector Purchasing Program, which lowered the ‘spread’ to receive credit”.
Wall Street is disappointed. First because Christine Lagarde, president of the ECB, was unable to provide a clear explanation of the central bank’s role in the purchase. But also because this is a political matter: “How would have European reacted – asks Zerohedge -, if the FED (Federal Reserves), was to directly help a US-based corporation in purchasing a European giant?”.