May 4, 2024

DealBook: Chinese Firm Is Behind a Group Bidding for Club Med

7:52 a.m. | Updated HONG KONG – Club Med, the French travel business that grew into a global resort operator, may soon become a private company under a buyout plan that involves a Chinese conglomerate playing an unusually visible role in the acquisition of a famous European brand.

The management and the two biggest shareholders of Club Méditerranée started a buyout offer on Monday valuing the company at about 540 million euros ($700 million).

AXA Private Equity of France, the Chinese conglomerate Fosun International and Club Med’s chief executive, Henri Giscard d’Estaing, said in a statement that they planned to make a formal offer of 17 euros per share “in the next few days.”

Club Med has been hit hard in recent years by the euro crisis, which has led to high unemployment and worried consumers across the Continent. Resorts in Europe and Africa accounted for 65 percent of the company’s revenue in the three months ended Jan. 31.

In response, the group said it planned to privatize the company to help make it “free from short-term constraints” as it seeks to reduce its traditional reliance on Europe and expand into emerging markets overseas, and capturing more demand from Chinese people traveling globally.

China overtook the United States two years ago as the world’s biggest source of foreign tourists, according to the World Bank. Mainland Chinese made 70.3 million overseas trips in 2011, a 22 percent increase from 2010. That compares with the 58.5 million overseas trips American tourists made in 2011, down 3 percent from the previous year.

And last year, China became the biggest spender in global tourism as outlays by Chinese traveling overseas rose 40 percent, to $102 billion, from 2011, according to the United Nations’ World Tourism Organization. Germans and Americans ranked second and third, each spending about $84 billion on foreign trips, the agency said.

Club Med opened its first resort on the Spanish island of Mallorca in 1950 and today operates more than 70 properties in 25 countries. The company’s offering of all-inclusive vacation packages and its traditional concentration on the European and North American tourist markets made it famous to a generation of postwar Western vacationers.

But the dynamics of growth in the global leisure industry have shifted dramatically in recent years, as companies seek to capture new demand from the increasingly wealthy populations of emerging countries like China, Brazil and Russia. Expediting that shift has taken on increased importance in the five years since the outbreak of the global financial crisis, as the West — specifically, Europe — has struggled to shake off economic malaise.

Club Med has posted annual losses in five of the last seven years, and revenue has not regained the level of 1.1 billion euros reached in 2008. The company has responded by closing less profitable resorts and expanding into developing markets.

Central to Club Med’s strategy as it pertained to winning more Chinese customers was a deal in 2010 that brought in Fosun, which is based in Shanghai, as a strategic investor with a minority stake.

Fosun and the other members of the group now bidding to take over Club Med have characterized the approach as friendly. Together they own 19.3 percent of the shares and 24.9 percent of the voting rights in Club Med. The bidders said their tender offer would lapse automatically if it failed to win at least 50 percent of the shares in the company.

Shares in Club Med soared about 23 percent to match the offer price in trading on Monday in Paris.

Until recently, Chinese companies have tended to be cautious when attempting to buy publicly traded companies, a wariness that stems in part from lingering memories of a controversial bid by the Chinese offshore oil company Cnooc for the American oil producer Unocal in 2005 that was effectively blocked by the United States Congress. Instead, Chinese acquirers have been aggressively buying privately held businesses, focusing mainly on European companies in machinery sectors like wind turbine component manufacturing, for example.

The Fosun-backed offer for Club Med, which trades on the NYSE Euronext in Paris, reflects the unusual nature of the relationship between the two companies. Many Western companies have expanded in China by setting up joint ventures with Chinese companies. Club Med chose a different route, allowing Fosun to buy a stake in the French parent company.

André Loesekrug-Pietri, the chairman and managing partner of a private equity fund based in Brussels, the A Capital China Outbound Fund, said he had approached Fosun and Club Med in March 2010 with a proposal for Fosun and A Capital to each buy stakes in Club Med.

Club Med had been struggling and was looking for a partner to help it open more resorts in Asia and to attract more Chinese tourists to its resorts all over the world. At the same time, Fosun was seeking a way to use its extensive real estate in China and its marketing divisions, which distribute insurance and pharmaceuticals.

Mr. Loesekrug-Pietri, who carries French and German passports, said a member of his staff was a personal friend of one of the four co-founders of Fosun. Mr. Loesekrug-Pietri held discussions with the Club Med chief, Henri Giscard d’Estaing, who is the son of a former president of France, and Michel Wolfovski, the deputy chief executive. But personal connections, known as guanxi in China, played little role in the 2010 transaction, Mr. Loesekrug-Pietri said. What really facilitated a deal, he said, was having the Chinese company buy a strategic stake in the foreign parent company instead of in a joint venture.

“It ensured full alignment of interests between the Chinese and foreign partners,” he said in an interview by phone from Paris.

The willingness of A Capital to take a long-term stake in Club Med alongside Fosun, in addition to serving as an intermediary in the deal, also reassured Fosun, Mr. Loesekrug-Pietri said. Fosun welcomed “somebody who had skin in the game,” he said.

Fosun and A Capital initially purchased 7.1 percent of Club Med in a deal that closed on June 12, 2010, only 89 days after negotiations began. Neither company has publicly disclosed how much of that initial stake was owned by each of them. Fosun has made further purchases since then, building its stake to 9.96 percent of the share capital and 16.48 percent of the voting rights.

At present, the two main investors in A Capital are the China Investment Corporation, which is China’s sovereign wealth fund, and SFPI, a Belgian pension fund. Mr. Loesekrug-Pietri said the China Investment Corporation only put money into A Capital last year and had played no role at Club Med, adding that he and A Capital had also not played a role in the takeover bid by Fosun and others announced on Monday.

A Capital, which manages 200 million to 250 million euros, will make a “nice premium” if it chooses to tender its shares for the takeover offer, but has not yet made a decision on whether to cash in its stake, Mr. Loesekrug-Pietri said.

Article source: http://dealbook.nytimes.com/2013/05/27/club-med-targeted-in-700-million-privatization/?partner=rss&emc=rss

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