A Governance Puzzle and Two Quality Growth Gems
More insights from the Sohn London Conference
This week, one pitch from the Sohn conference for free subscribers and two quality growth ideas for those on the premium tier. But first, a word from this week’s sponsor.
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Sohn London Conference
There were 3 great short ideas and 11 longs, although one of those could have been a short – more on that below. Speakers included two former partners of Chris Hohn’s TCI, long only and long short funds, a private equity type fund, and even a macro fund with a sovereign bond idea.
The speakers were:
William de Gale Bluebox AM
James Hanbury, Lancaster IM
Anne-Sophie D’Andlau, CIAM
Liad Mediar, Gatemore CM
Edgar Allen, High Ground
Stephen Shields, North Rock Capital
Mikhail Zverev, Amati Global Investors
Thiago Mordehachvili, Granular Capital
Diego Megia, Taula Capital
Oscar Hattink, BlueDrive Global Investors
David Semeza, Islander Capital Partners
Malte Heininger, White Creek Capital
Carson Block, Muddy Waters Capital
Last week, I covered a Spotify long and two of the racier longs. This week, I look at Vivendi, the stock recommended by Anne-Sophie D’Andlau of CIAM, a French asset manager which pays close attention to corporate governance. Regular readers may remember that I have history with the stock and although it has been very profitable for me, I have not been the biggest fan of its governance. Hence I had a particular interest here.
The company is controlled by Vincent Bolloré, the French billionaire, and the stock continues to trade at a c.40% discount to the sum of its parts. There is a vote on December 9 on whether to demerge its four top tier assets and list them on different European exchanges. CIAM explained that an initially positive reaction to the announcement turned negative when more details emerged, and they are hoping that shareholders vote against the proposals in order that a more shareholder-friendly alternative can be found.
I explain below why they dislike the proposed deal and why it could conceivably widen the discount to intrinsic value, an unusual outcome for such a move. I have understood their opposition, but I am unclear on why they think the outcome of the vote will go against the principal shareholder. I wonder if a more rational recommendation would be to buy Bolloré, the main family vehicle, which is an each-way bet on the outcome of the vote as it will benefit either way.
I had hoped to ask the presenter at the conference, but I couldn’t find her, and my past emails to her partner (a former Sohn presenter) went unanswered. Mind you if you are governance focused, Bolloré might not be in your top 10 investees list, allegedly.
The presenter had a number of criticisms of the demerger proposals:
Bolloré will continue to control the new companies.
Because of the exchanges chosen, Bolloré will not have to make mandatory takeover offers.
Questions on the location of the new listings
Vivendi will drop out of the CAC 40 and become a an overlooked small cap
And hence they foresaw no upside. You have to ask why the stock was being recommended as a long and I don’t have the answer to that, sorry. Vivendi owns stakes in Universal Music, Telecom Italia, Telefonica, Prisa and others and has 4 top tier assets:
Canal+ Group in TV and cinema – this is to be floated in London. The presenter criticised this as the Brits wont understand French TV, but I think media analysis is actually pretty good in London and they don’t need to watch the channel to work out how much it’s worth.
The presenter pointed out that there are no other foreign media companies listed in London and that the sector is dominated by RELX. True, but I am not sure how worrying that is, although they feel that there could be a governance discount which is fair and that there could be index and retail selling, which I see as a potential medium term positive - if the stock is cheap enough, that will generate interest.
Prisma Media for press – this will become a subsidiary of Louis Hachette.
Louis Hachette in publishing is to be listed on Euronext Growth rather than Euronext Paris where Lagardere (which will be a subsidiary alongside Prisma Media) is listed. They see this as inappropriate as the market is geared to small caps. They are concerned about liquidity and again on governance and index selling.
Havas in advertising is to be listed in Amsterdam, which they think has been chosen as it will not require Bollore (which will own >30%) to make an offer. They think this is the wrong location as there are no local peers and it’s a small sector. I don’t think you need local peers. They also point out that minority shareholders will lose voting rights because of a poison pill arrangement and I have not checked the details. Again they cite index selling pressure and a governance discount.
I can see why the presenter is concerned that these transactions may not realise full value for Vivendi shareholders and I understand their concerns on governance discounts and index selling, although these apply irrespective of where the stocks are listed. The point is that there is always a sum of the parts discount in this type of situation and it’s usually positive when action is taken to narrow the discount, but perhaps less so in this case.
Of course, it might well be better to sell the assets to a third party and buy back the parent stock at a discount. Presumably if Bolloré or Vivendi had received approaches, they would be obliged to consider them.
I remain puzzled as to CIAM recommend the stock and I wonder how much chance they have of 1) defeating the vote and 2) implementing an alternative plan. If you like the assets and the discount, isn’t the easiest route to buy Bolloré stock as I said above?
I haven’t followed the company that closely for some time, and there may have been changes in the corporate structure. But investing with billionaires is usually a successful strategy and the best way is to invest directly where they have the greatest exposure, and not leave yourself open to being disadvantaged in an intermediate holding company.
Premium subscribers can read on for two of the conference’s best long term fundamental quality growth ideas.