French Establishment Saves Lagardere from Hedge Fund Humiliation

(Bloomberg Opinion) -- An outsider’s attempt to storm Paris has failed after the French establishment pulled rank. London-based hedge fund Amber Capital U.K. LLP didn’t win enough support to replace the board of Lagardere SCA, owner of the Hachette publishing house, at Tuesday’s annual meeting. Lagardere’s independent shareholders have regrettably missed the chance to have some influence over the company at a critical moment in its history.

The shares fell upon the news, and it’s not hard to see why. The vote largely preserves an existing board that has overseen abysmal returns for investors.

That poor performance over such a long period provided a sufficient argument for overhauling the company’s governance. But Amber, headed by former Societe Generale prop trader Joseph Oughourlian, also shone a light on the deficiencies of its so-called commandite partnership structure. This has kept managing partner and 7% shareholder Arnaud Lagardere richly rewarded, even as outside investors suffered. Meanwhile, the supervisory board went along with the situation and lacked the power to forcibly change management.

The activist campaign gained traction amid the broad endorsement of proxy voting firms. That, however, prompted a reaction from Lagardere’s allies. Vivendi SA, the media conglomerate controlled by billionaire Vincent Bollore, took a big stake in the company last month. So did French investor Marc Ladreit de Lacharriere, Les Echos reported. They likely rejected Amber’s resolutions. The key poll results would otherwise have hung in the balance rather than being split roughly 60:40.

It is a shame for outside shareholders that not even one of Amber’s eight nominees were elected. The board could have used an immediate injection of outsiders. Sometimes a partial victory is as good as it gets in activism. Might Bollore have been open to supporting a handful of candidates if the campaign had not become so heated? Perhaps.

What happens next? Lagardere’s shares continue to suffer amid measures to curb the coronavirus, given the firm’s reliance on the advertising and travel businesses. So the board needs to be ready to defend the company against opportunistic bids for all or part of the business.

The company would be in a stronger position if it ended the commandite, thereby rebooting the standalone investment case. That requires the board to make Arnaud Lagardere an offer, probably in the form of an additional stake, that persuades him to give up the structure. It would be a wrench to cede control of an institution that bears his family name. Much will depend on his personal financial situation, especially as the company is no longer in a position to pay the generous dividends he previously received.

Both a sale of the commandite and any deal for all or part of the group would present challenging negotiations. Outside shareholders will want a board that delivers substantially better results for them than it has in the past. The French establishment may have saved Lagardere from outright humiliation, but this protest vote should not be ignored.

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

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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