Holiday club operator Club Med, which looked set to move smoothly into the hands of new owners, is back in play. Italian investor Andrea Bonomi has revealed he is considering a bid for the company, just as it was planning to complete a sale to management, backed by shareholders Chinese company Fosun International and French private equity investor Ardian.
Bonomi had a June 30 deadline set by French authorities, to decide whether to present a formal counter offer, without which he would not be able to move again for six months. He has been challenging this deadline.
The EUR557m take private deal was announced and agreed last year, but has been held up with legal challenges from other shareholders, allowing Bonomi time to buy into the group. In March, he used his Strategic Holdings vehicle to buy almost 11% of Club Med stock, eclipsing Ardian and Fosun as the largest single shareholder. Bonomi opposes the new ownership structure, and his intervention has pushed Club Med shares well above the EUR17.50 price offered by the deal on the table; they recently reached more than EUR19.25 each. Despite the current market price, Ardian and Fosun have made no attempt to date to increase their offer.
The logic behind the offer from Fosun was its links with the Chinese market, where Club Med has been growing recently, and from which it is profiting greatly. June saw the company open its third Chinese resort, with two more in the pipeline to open there next year; but still 70% of revenues are generated from its European operations. East looks to be the direction to travel: according to one analyst quoted by the Financial Times, margins in China are 19.3% against 0.9% at the group’s European resorts. As a Chinese property developer, Fosun offers the opportunity to increase the rate of Asian expansion.
Club Med was founded in 1950 on the concept of all-inclusive holiday villages, with an emphasis on sporting facilities. Today, it has around 80 holiday villages around the globe. Despite a presence in 40 countries, still over 40% of its EUR1.4bn revenue as of 2013 came from operations in France. A conscious move upmarket during the last few years has taken its percentage of four and five star guests from 45% to 73%.
Potential bidder Bonomi is well known for investing in upmarket brands. He has bought and sold the Italian Ducati brand, as well as acquiring a stake in Aston Martin; though opponents of his approach point out he has no track record in the hospitality sector. For Club Med, he is understood to favour further European expansion, including opening resorts in Spain, a market Club Med is no longer present in.
HA Perspective [by Chris Bown]: Under the management of chairman Henri Giscard d’Estaing, son of the former French president, Club Med has been turned around with the alacrity of a supertanker. The last few years have seen him take the company upmarket, where the margins are better, and there has been greater international expansion. But not before the European recession bore down on the portfolio, while it was still dominated by French properties.
With the Ardian-Fosun offer now a year old, the market is pricing in the recovery in Club Med’s home market, and Bonomi can see that, too. Here is a solid business, with the upside of an expansion already under way into the world’s fastest expanding holiday region; and its home market picking up from the bottom of the cycle. The original bidders will need to raise their offer – or are they waiting to call Bonomi’s bluff? Like Bonomi, other shareholders must now think the shares are worth more than EUR17.50 each.