Lagardere to target travel retail and media buys, active divestments – bankers
* Balaire’s role seen as less strategic in short term
* Travel retail buys to target Asia and Middle East
* DFS Group flagged as potential but difficult target
Lagardere [EPA:MMB], the French media and sports group, will scale its travel retail business through M&A as it continues to divest assets in its Lagardere Active division, sector bankers and analysts said.
The departure of CFO and co-managing partner Dominique D’Hinnin, announced last month, has created some uncertainty for investors, one banker said. Shares in the group fell 13.3% the day after the announcement. As Lagardere’s finance director since 1998, D'Hinnin was perceived as a stabilizing factor in the company, the banker said. But it was the right time for him to leave and he was very willing to move on, a second banker said.
The incoming finance director, Bruno Balaire, a partner at audit and consultancy firm Mazars, will inject “new momentum” into the company, which is looking for a new vision and culture, the second banker added.
Balaire is a “smart guy”, shrewd and interested in strategic matters and M&A, a source familiar with situation said. But unlike D’Hinnin, who was second in command of the whole group, he will be less involved in strategic matters at first. “Maybe further down the line … but not immediately,” the source said.
Mazars acted as financial accountants earlier this year to French news publisher Groupe Les Echos in its purchase of Pelham Media, a UK-based communications consultancy firm.
As for the future vision, Lagardere will make acquisitions in travel retail and publishing as it has done in the past, the bankers and analysts said. They were divided, however, on whether it would be a buyer or seller in the TV production space.
The group’s travel retail division is pushing to consolidate the sector, a fourth banker and one of the analysts said. The sector is still fragmented, with many local shops in airports and railway stations to be taken over, the analyst added. Previous acquisitions include Lagardere’s purchase of Paradies, a US-based airport travel retailer, for USD 530m last year, and 17 fashion and confectionary retailers at JFK airport.
Lagardere would buy companies in Turkey, the Middle East, the Arabian Peninsula, and South Eastern Asia, including Taiwan and Singapore, because there are very few targets left in Europe, the fourth banker said. Transactions worth EUR 100m or more will be considered, the second banker said. Transactions in China are also of interest, although that market is trickier, the fourth banker added.
A move to acquire the Duty Free Shop (DFS), which is owned by the Selective Retailing division of listed luxury group LVMH [EPA:MC], would make sense partly because of DFS’ significant presence in airports, the first analyst said.
This would reflect a trend in the market, which saw Swiss group Dufry [SWX:DUFN] buy Italian rival World Duty Free [BIT:WDF] for last year for EUR 1.3bn, he said. But Lagardere’s cash position is limited and it would need help from a private equity firm to execute a transaction by buying a minority stake, he said. Lagardere had EUR 634m worth of cash and an undrawn credit line of EUR 1.2bn at the end of December 2015, according to its FY15 results. It has a leverage ratio of 2.4x net debt/recurring EBITDA.
LVMH’s Selective Retailing business group, which also includes cosmetic chain Sephora and Le Bon Marche in Paris, reported EUR 11.2bn in revenues for FY15, up from EUR 9.5bn a year earlier. The company does not report DFS’ revenues. DFS is a core part of LVMH and is not for sale, however, a fifth banker said.
Talks of travel retail acquisitions come after Lagardere Travel Retail divested its Belgian activities to the Belgian Post Group, also known as bpost group, and its Spanish Distribution subsidiary, SGEL, to Springwater Capital, earlier this year.
Other opportunities and divestments
Elsewhere, Lagardere could look to buy publishing companies in the US, the second banker and a second analyst said. These would be small to medium-sized transactions worth less than EUR 100m, the analyst added.
It could also buy look to production companies operating in the TV, animation and film sectors, which are attracting many buyers, including RTL [EBR:RTL], Vivendi [EPA:VIV], Altice [AMS:ATCT], Numericable and TF1 [[EPA:TFI], a sixth banker and a third analyst said. The arrival of Bolloré at the helm of Vivendi, the entry of Altice in the media sector, and the acquisition by TF1 late last year of Newen Studios have triggered consolidation in this space, they said.
But, others saw Lagardere as more likely a seller in this space. It is thought to be reviewing the sale of Tele7 Jours, part of Lagardere Active, having failed to sell it earlier this year, the fourth banker and several analysts said. In fact, all of the Lagardere Active division was rumoured to be up for sale last year after approaches were made by French private equity firms, the fourth banker said.
The division is struggling and there are no targets left in France that can help it grow, he said. He added there are not enough synergies around advertising and TV rights for Lagardere to acquire other media assets in Europe.
Lagardere Studios, part of Lagardere Active, also remains a divestment target, the third analyst said, adding that likely buyers would be TF1, Altice and Vivendi. Lagardere hired Societe Generale to sell a stake sale in the subsidiary, as reported.
Meanwhile, the whole group, controlled by Arnaud Lagardere, is seen as an attractive target to several media buyers, including Vivendi, as reported. The first and second bankers deemed a full sale unlikely. “Arnaud has never really wanted to sell. It’s a family business so there’s an emotional factor,” the first banker added.
Lagardere reported EUR 7.1bn in revenues and operating profit of EUR 399m for FY15. Travel Retail is Lagardere’s largest division, responsible for EUR 3.5bn of the revenues, followed by Publishing with EUR 2.2bn and Active with EUR 962m. The remainder is held by Sports and Entertainment.
Lagardere did not return calls for comment.