The ever lasting French national sport : self-dealing at TF1, LVMH and Icade

For the first time this year, shareholders have rejected the related-party agreements at a CAC 40 company, TF1, the first television channel in France. Congratulations to Bouygues who complied with the law (it has not always been the case) and respected minority shareholders by not voting on the resolution. Considering that the proposal comprised related-party agreements from which Bouygues is a beneficiary, Bouygues might have to better justified one of the fifteen related-party agreements in the future. Proxinvest had recommended shareholders to oppose the resolution as it appears to be an inappropriate use of shareholders’ funds. Indeed, Bouygues’ invoice for administrative services provided to TF1 amounted to €3,4 m this year (€4 m in 2008). This payment represents 3% of the company’s results and needs justification in our view. The fact that a listed company like TF1 always asked its controlling shareholder to provide human resources services, IT services, financial advice, among other services at an unusual price, can not be sustainable. In addition, these services are not specific to Bouygues’ industry sector and surely TF1 could handle human resources issues themselves…

Another example is Bernard Arnault and LVMH acquisition of the prestigious winery Château Cheval Blanc, part of the Saint-Emilion appellation. Bernard Arnault being the Chairman, CEO and controlling shareholder of LVMH, you might asked yourself what else could he be for the company? He personally bought 50% of the winery in 1998 for €66 m and just sold it to LVMH for not less than €238 m in 2009 (for a net worth of €151 m). Bernard Arnault seems to be very familiar with this kind of operations relying heavily on the laissez-faire or credulity of shareholders. We remember his over-evaluation of Le Bon Marché sold to LVMH, which paid €4,9 m in 2009 for consultancy services (€4,8 m in 2008, €4,7 m in 2007).

These operations harming the interests of minority shareholders have become a national sport in France with champions such as Pinault, Axa, Wendel, Bourbon, Gecina; even the backbone of institutional investment, La Caisse des Dépôts, has asked this year one of its listed subsidiaries Icade to sell housing assets to another one of its subsidiaries. The average price in Paris and its region is €4 213 € / m² for an apartment and 2 730 € / m² for a house. Surprisingly, the assets were only sold between subsidiaries at 742 €/ m²! « Tant que les actionnaires seront tondus comme des naïfs, il n’y aura ni investissements ni emplois durables en France ».

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