Club Med bidder Fosun has room to use additional cash from insurer to fund bump
Fosun International [HKG:0656] has room to use additional cash from its insurance arm Fidelidade to increase its offer for Club Med [EPA:CU], according to a source close to Fosun and a Moody's analyst.
While Fosun “can’t use the insurance arm to fund all of its acquisitions”, Moody’s analyst Kai Hu told this news service, “there is some room to increase investment in equities” by the arms. The source agreed that Fosun could use more cash from Fidelidade to finance a potential bump.
Fosun is considering whether to bump its EUR 22-per-share offer after a EUR 23-per-share bid came in this week from a consortium led by Italian private equity fund Investindustrial, a second source close to the conglomerate fund said.
The credit rating agency had previously said that the weak performance of Fosun’s core business and the company’s aggressive investment strategy was putting pressure on the Chinese conglomerate’s ratings. Fosun is rated Ba3 by Moody’s with a negative outlook.
“They [Fosun] are aggressive in making investments but that is relieved by using some funds from insurance companies,” Hu said, pointing to the company’s strategy of using large amounts of debt to fund acquisitions.
These investments have resulted in an increase in Fosun’s gross debt by RMB 18.4bn (EUR 2.39bn) to RMB 87.4bn (EUR 11.38bn) in the first half of the year.
In its bid for Club Med, Fosun teamed up with its Portuguese subsidiary Fidelidade, French private equity fund Ardian, and travel agent U-tour.
In this occasion it will be difficult for Fosun to add additional leverage to the deal, the second source said. He said the last time Fosun bumped the bid, the lenders were hesitant at that point to offer the bidder more debt.
But the decision as to whether or not to bid were not based on financial concerns, but on strategic ones, the first source and a third source said. The company had several financing options, the third source said, but had to consider whether it made sense to make a higher offer under the present circumstances.
Fosun and Ardian made their first bid for Club Med more than a year ago at a price of EUR 17 per share.
Since then Investindustrial, together with South African investor Sol Krezner and former Club Med CEO Serge Trigano, have made two separate offers, the latest one together with private equity firm KKR.
As of its latest disclosures, Investindustrial and the parties with which it is acting in concert held 15.9% of Club Med’s share capital and 14.3% of its voting rights, and Investindustrial said it could acquire additional shares until it reaches 18.9% of the share capital and 17% of the voting rights.