The acquisition by the Casino group of the missing 50% stake of Monoprix from Galeries Lafayette on July 1st. offered an interesting piece of evidence of the freedom of financial experts and thereby of the limits of the French legal “independent” expertise regime.
The repurchase by Casino of the Monoprix shares held by Galeries Lafayette is a good move for both retail groups reinforcing each in their field, more food & general city stores at Casino and more cash for more luxury outlets for Galeries Lafayette.
The latter agreed to sell its 50% of Monoprix at a price of € 1.175 billion, a balanced price near the Casino stock EBITDA multiple, in line with price expected by analysts of these two companies.
What concerns us is the remarkably wide gap between the disclosed valuations made by the advisory banks of both groups and the final price: 700 million for the expert bank appointed by Casino, or 62% of the final price of € 1.175 billion, and 1.95 billion for the expert bank appointed by Galeries Lafayette or 166% of the final price. From 62% up to 166% !
Such wide gap teaches us that the Regulators method using such expertise in a takeover bid or any other regulated operations is not at all satisfactory when the issuer appoints and pay the so-called “independant expert”. Pretending to protect minority shareholders on the basis of such “independent expertise” is a and even very detrimental to shareholders rights. Here again, Proxinvest claims for a necessary reform of the protection of shareholders in case of public offer, for the use of any independent expert makes clearly no sense when the expert cannot be seriously qualified as independent.
In its 2006 set of Recommendations, revised in 2010, the French Financial Markets Authority AMF discussed the “independent financial expertise” as always steeped in good intentions imposed several diligences and reporting to the directors appointing such expert and to the expert himself; The AMF simply did not address the basic conflict of interests created by the selection and remuneration of the expert by the beneficiary party, I;e; the controlling shareholder of the listed company. The French General Financial Regulation and these AMF Recommendations see no problem when theses “independent experts” are clearly dependent from the initiator for a transaction potentially harmful to shareholders.
“The expert is independent and the best proof of it is that he claims it himself.” The above example of Monoprix expertise shows however that, depending of the paying party the valuation may vary up to threefold. Relying on such experts designated by the issuer as under our current “independent expert” regime is simply permissive and unfair to investors another cut-throat for minority shareholders . .
It would have been possible and simple for responsible regulators to consider a possible neutralization of the appointment and compensation of the expert, but, opposite to what she recommends to experts, the AMF then ignored remarks of minority shareholders, as duly presented by Proxinvest.
July 11, 2012
