Billionaire Activism Is Alive and Well in Paris

(Bloomberg Opinion) -- Shareholder activism is alive and well in Paris. Mall owner Unibail-Rodamco-Westfield’s plan to raise 3.5 billion euros ($4.1 billion) to gird its balance sheet for Covid-19 was voted down by investors after opposition led by billionaire Xavier Niel and former boss Leon Bressler. Their victory is strengthened by winning three seats on the firm’s supervisory board.

This speaks to the credibility of their campaign, but also to Unibail management’s blinkered defense. In a land where dissidents don’t usually win, it’s a big moment.

French activist campaigns often flounder when met with the tight-knit resistance of a cozy Parisian elite who don’t take well to being bossed around by hedge funds. But the Unibail battle turned that template upside down. The credible faces and arguments were on the side of the activists: Telecoms mogul Niel’s experience with debt markets and deep pockets, combined with Bressler’s long career in commercial property, lent weight to their arguments against a rights offer that promised heavy dilution: Why not sell more assets, or borrow more, especially as Unibail has ample cash to hand?

Unibail Chief Executive Officer Christophe Cuvillier’s obstinate refusal to engage with the activists’ arguments — on a call with analysts he said he and his team were not “fools” — made things worse, locking his side into an all-or-nothing bet. His view became increasingly one of a glass-half-empty: Without a capital increase to bring down Unibail’s borrowings, the firm might lose its credit rating, pay more to raise debt and be exposed to a worsening pandemic. Even as a shareholder proxy firm advised delaying a rights issue to explore options, Cuvillier stood firm.

This stance only added to the impression that Unibail’s plan was driven less by facts on the ground and more by trying to defend a strategy that had failed to pay off even before the health crisis struck. Niel and Bressler could credibly point to Cuvillier’s debt-laden expansion in the U.S. and U.K., driven by the 2018 acquisition of Westfield Corp., as the original cause of the firm’s indebtedness. Unibail simply didn’t look in control of its destiny, with pressure to raise capital coming from short sellers and investment bankers. Confidence had eroded.

Cuvillier could have offered an olive branch to the investors with a compromise deal but chose not to — right up to the eleventh hour on Monday, when Pfizer Inc.’s positive vaccine announcement sent Unibail’s stock up some 30%. This was a sign that a strategy based on the worst-case scenario was on rocky terrain, especially for a stock trading at a near-80% discount to asset value until yesterday.

While this is obviously a big victory for Niel and Bressler, Cuvillier’s inflexibility ultimately sealed his defeat. He would do well to learn the lesson from this and take a more constructive approach now that his opponents are inside the tent. Covid-19’s second wave is far from over, Unibail needs to restructure and reorganize and the shopping-mall industry faces structural threats from the likes of Amazon.com Inc. Still, for the ordinary shareholder, it looks for once like a deserved victory against an investor-unfriendly outcome.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering the European Union and France. He worked previously at Reuters and Forbes.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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