Why investors should be troubled by two French corporate dramas

At first glance French luxury empire LVMH and media group Lagardère have little in common. The first is the world leader in its sector; the latter a shell of its former self.

Yet the drama unfolding at both companies shows how French president Emmanuel Macron’s aim to make the country more attractive to international investors has some way to go.

Take Bernard Arnault, LVMH’s controlling shareholder and Europe’s richest man. He has buyer’s remorse and wants to recut the $16.6bn deal LVMH struck to buy US jeweller Tiffany last November. With the coronavirus crisis upending the luxury sector, LVMH has been trying to find chinks in an ironclad merger agreement.

Earlier this month, the “wolf in cashmere” pulled a rabbit out of his hat. LVMH declared that the French foreign minister, Jean-Yves Le Drian, had written a letter to the Paris-based company asking it to delay the closing of the acquisition until January 6.

The apparent reason? To support France in its trade battle against US president Donald Trump, who has vowed to slap customs duties by early January on French industries, including luxury goods, in retaliation for France adopting a digital services tax. The unprecedented letter called upon LVMH “to take part in our country’s efforts to defend its national interests”. 

LVMH has denied soliciting the letter. But it seems a stretch of the imagination to think that the company played no part in its auspiciously timed arrival. Mr Arnault holds unique sway in France, and his family are close to the Macrons. 

The idea that the French state should have to come to the rescue of someone whose entire €200bn empire has been built upon hard-nosed and savvy dealmaking is embarrassing — for both the government and Mr Arnault.

And then there’s Lagardère, a shrunken business empire but one that still encompasses the Hachette publishing house, Relay newsagents and Paris Match magazine. Here managing partner Arnaud Lagardère wants to cling on to control despite growing concerns about the group’s underperformance during his 17-year tenure and his high personal debt levels.

Thanks to its arcane and fortress-like legal structure, Mr Lagardère controls the group with only a 7.3 per cent stake. For the last four years he has thwarted efforts by activist investor Amber Capital to unseat him. Mr Lagardère seemingly bought some breathing space in May when he revealed that an old family friend was buying 25 per cent of his holding company — one Bernard Arnault.

Amber countered by striking a pact with another Lagardère shareholder: Vincent Bolloré’s Vivendi. Now the pair are demanding seats on Lagardère’s supervisory board. 

But Mr Lagardère appeared to have one more trick up his sleeve. In mid-August, the company announced that its supervisory board, which he insists is independent of his influence, had renewed his contract for four years, seven months ahead of schedule and just after the group reported a €481m first-half loss. 

Both corporate dramas will end in court. In January a Delaware judge will decide whether LVMH must uphold the terms of its deal with Tiffany. This week court proceedings began in Paris to determine whether Lagardère can be forced to hold a shareholder vote on Amber and Vivendi’s request for board seats. 

Regardless of the outcomes, it’s hard to shake off the perception that political interventionism and a cosy “who-you-know” capitalism are still the order of the day in France, despite Mr Macron’s attempts to modernise it.

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