(Bloomberg Opinion) — A hedge fund challenging the French establishment for control of Lagardere SCA has notched up a victory with the help of billionaire investor Vincent Bollore. But the fight over the media and retail company is far from over, even if Chief Executive Officer Arnaud Lagardere now faces an uphill battle to prevent a breakup of the company that bears his name.
Vivendi SA, a French media group controlled by Bollore, teamed up with the hedge fund Amber Capital U.K. LLP last year to push for governance changes at Lagardere, which Arnaud controls through an antiquated partnership structure despite owning just 7% of the stock. Lagardere roped in former President Nicolas Sarkozy as well as the billionaires Marc Ladreit de Lacharriere and Bernard Arnault to fend off the challenge.
On Tuesday, Lagardere agreed to significant concessions, abandoning the partnership arrangement, known as a “commandite,” in return for a six-year contract as chairman and a doubling of his stake. Financially, he’s made a shrewd choice. Under the commandite structure, his management company received sizable consulting fees that Amber heavily criticized. He’s exchanging that for greater exposure to Lagardere SCA’s financial success — if he can resurrect its fortunes, he benefits more; and if he fails, he’ll receive more proceeds from any asset sales.
But without the protection of the commandite, Lagardere must work harder to convince shareholders that he can make the most of the company’s assets. Vivendi is eyeing some of its businesses such as the Europe 1 radio station and Hachette publishing house, while Arnault is reportedly interested in Paris Match magazine and the weekly newspaper Journal du Dimanche. Major asset sales require approval from seven of Lagardere’s 11-person board, as does replacing the chairman or CEO.
Key to the survival of both Lagardere and the integrity of the company founded by his father will be the extent to which the board members are willing to protect the interests of all shareholders — i.e., the extent to which they are truly independent. Vivendi and Arnaud will nominate three board members apiece, of which two each must be independent. Another three will be nominated by Amber, Arnault and the Qatari sovereign wealth fund respectively, with a further two going to employee representatives.
Agreeing to these concessions seems to suggest that Lagardere wasn’t totally confident he’d retain control of the board at the upcoming annual shareholder meeting. He’s negotiated some protection, but he’s more vulnerable than before.
If he can ride the post-lockdown recovery to resurrect the fortunes of the company, which includes a significant duty-free retail business, then in two or three years’ time there’ll be little reason for the board to push him out or approve asset sales. If he fails, however, then it’s their duty to find other ways to maximize value for the company’s investors, which may mean divestments and
Lagardere’s history at the helm does not augur well. The company has significantly underperformed both the French market and European media stocks since he took over in 2003. Vivendi and Amber may be gambling on his inability to buck that trend in order to achieve their goals, whether that be his ouster or their acquiring prize assets. Bollore is a master of playing the strategic long game.
While Lagardere’s concessions may look like a truce, the suspension of hostilities is only temporary.
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Alex Webb is a Bloomberg Opinion columnist covering Europe’s technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.