France makes life difficult for minority investors

Pushy bosses are on the ascendant in French companies. Vivendi, Christian Dior and Safran are all embarking on complex deals driven by the lopsided interests of big shareholders and executives. In each case, minority investors can’t do much about the potential conflicts. C’est la vie, unfortunately.

First, take Vivendi’s chairman and biggest shareholder, Vincent Bolloré. On Thursday he revealed a plan to merge the European media group with ad agency Havas, which he also controls. The deal values Havas at a premium, even though there’s no suggestion there will be cost savings to justify one. The industrial logic is scant. Vivendi investors can only respond with a Gallic shrug.

Bernard Arnault is doing something more complex but also self-serving. His family company is buying out the stake it doesn’t own in Christian Dior, then selling its fashion business to LVMH, which he also controls. He will pay a modest premium for the Dior group, but then offload its fashion brand at a pedestrian 15.6 times trailing EBITDA. Dior shareholders would do better selling Christian Dior Couture directly, at a premium. As it is, they don’t get to choose.

Finally there’s aerospace group Safran, whose biggest shareholder is the French government. It is trying to buy plane-seat maker Zodiac in an 8.2 billion euro cash and shares bid that is almost one-third above the price of the target, a serial issuer of profit warnings. The deal will create a French champion, and is structured to allow Zodiac’s founders to avoid taxes. Shareholder TCI Fund Management is among the other investors who are furious, but basically impotent.

Overruling unhappy shareholders is easy in France. Unlike in Britain or Spain, companies don’t have to give shareholders a vote on big acquisitions. Investors can always sue spendthrift bosses, but even if they win, the money is awarded to the company, not the individual shareholders.

The theory is that all this makes companies more nimble. That’s probably true. But it also comes at a cost, if acquisitive bosses and controlling shareholders forge ahead with deals that leave them better off, or destroy value for everyone else. Muting dissent is a great way to make French companies get bigger and more global – and help powerful insiders take what they want.