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Telecoms boss and real estate investment fund team up to push for change at indebted shopping centre owner

Xavier Niel, the French telecoms billionaire, has teamed up with a well-known real estate investor to buy a 4.1 per cent stake in Europe’s biggest shopping centre operator, Unibail-Rodamco, with the aim of scuppering its forthcoming €3.5bn rights issue.

Mr Niel and Aermont Capital’s founder Leon Bressler, who led Unibail himself for 14 years until 2006, sent a four-page letter to the board on Thursday laying out a broad critique of the company’s strategy and calling for changes. They declared they would vote against the “severely dilutive” and “unnecessary” rights issue and urged others to do the same.

The pair argued that Unibail-Rodamco should instead sell its US property portfolio to pay down its €24bn debt load incurred in the 2018 acquisition of Australian mall operator Westfield. They are also seeking three board seats.

The surprise campaign throws doubt over the shareholder vote on the rights issue on November 10. Unibail-Rodamco needs to win over two-thirds of shareholders to move ahead with the share sale.

It is a key part of the €9bn debt reduction plan announced in September, which the company cast as needed to avoid a ratings downgrade and cope with the fallout from the Covid-19 pandemic. 

In an interview, Mr Niel said Unibail-Rodamco’s current management and board of directors were “acting out of fear” and were “prisoners of a failed strategy” that began with the Westfield acquisition.

“We cannot let this company, which is a European champion, self-destruct,” said Mr Niel, who earned his fortune by creating French telecoms group Iliad.

“The governance of the company does not function properly since none of the directors own significant stakes. We want to be a reference shareholder that can help it rebuild to generate more value.” 

Unibail’s woes highlight the broader challenges for owners of commercial property, and particularly landlords of malls, whose rental income has plummeted as a result of coronavirus.

As Europe grapples with a resurgence of infections and the spectre of new restrictions on business and social life, retailers are struggling to stay afloat, with some seeking to renegotiate cheaper leases. The pandemic has also accelerated the shift to ecommerce, which some investors believe will weaken commercial property companies over time. 

Unibail-Rodamco has been one of the most shorted stocks in Europe since the summer. Nearly 30 per cent of the shares in free float are out on loan to investors betting against the company, according to IHS Markit data on Bloomberg. 

Mr Bressler said that Unibail-Rodamco would be able to weather the downturn triggered by the pandemic because of its strong portfolio of high-end malls in Europe. They include Westfield London, the Carrousel du Louvre in Paris and La Maquinista in Barcelona.

“In a post-Covid world, the best malls in attractive locations will be the big winners,” he said. “It is time to re-establish Unibail again as a pure player focused on Europe and to end its ill-fated adventure in the US where it does not have the critical mass to succeed.”

Aermont’s funds have owned a 2 per cent stake in Unibail since roughly mid-2019. Mr Niel has been a longtime investor in Mr Bressler’s funds but only began building a direct stake in Unibail-Rodamco recently via his personal holding company, NJJ Capital. 

Although Mr Niel and Mr Bressler rejected the term, they are acting much as activist investors do when they buy shares in a company and agitate for changes. They said they reserved the right to buy additional shares in Unibail-Rodamco but would not seek to gain control.

“We are not activists but can’t remain passive any longer,” said Mr Bressler.

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Covid-19 could make the fourth quarter very difficult, CEO Arthur Sadoun says

Madison Avenue has taken a beating as advertisers have slashed budgets amid the global pandemic, but the third quarter offered some improvement for one of the world’s largest ad holding companies.

At Paris-based Publicis Groupe SA, organic revenue—a key industry measure that strips out currency effects, acquisitions and disposals—fell 5.6% in the quarter compared with the prior year, the company reported. The decline represents an improvement from the 13% drop in the second quarter.

Publicis has captured business from clients shifting budgets to digital media and commerce, Chief Executive Officer Arthur Sadoun said in an interview.

And despite the massive disruption to the global economy this year, revenue from the company’s top 200 clients, which account for about 60% of its total revenue, hasn’t fallen, but increased—nearly 1% year-to-date, he said.

That doesn’t mean the crisis is over for the company, which owns ad agencies including Leo Burnett Worldwide and Saatchi & Saatchi Group Ltd.

“Things are very very uncertain and with the resurgence of the virus, Q4 might be very difficult,” said Mr. Sadoun. In its earnings report, the company warned that results in the final quarter could be worse than in the third.

If there are lockdowns during the holidays, for example, it will be difficult to anticipate the blow to the ad business and its clients, said Mr. Sadoun.

Pockets of strength amid declines

Publicis reported net revenue of €2.3 billion, equivalent to $2.7 billion, down from €2.6 billion in the year-ago period.

Organic revenue in North America declined 3% in the third quarter, compared with the period a year earlier, the company said. Elsewhere it fared worse: organic revenue fell by 9% in Europe, 11% in the Middle East and Africa and 14.8% in Latin America.

The company beat analyst expectations of a decrease in organic revenue of 8.27%, according to FactSet.

Top-spending sectors in the ad business, including travel, fast food, retailers and automotive, have slashed ad budgets in recent months as they have struggled with homebound consumers and manufacturing difficulties.

“It’s a mixed bag of clients with some investing more and some less,” said Mr. Sadoun.

The two categories that have hurt Publicis’s revenue most this year are automotive and financial services, said Mr. Sadoun. Categories offsetting some of those declines include health care and consumer packaged goods, he said.

Earlier this year, many ad businesses began hiring freezes and drastically cut expenses. Publicis withdrew its financial guidance and said it would reduce costs by €500 million this year. Rival Interpublic Group of Cos. also withdrew its full-year financial performance targets.

Publicis is still on track to cut costs by €500 million this year, said Mr. Sadoun.

Joint position paper says breaking up large companies is ‘on the table’

US tech giants are facing the threat of an EU attempt to break them up after France and the Netherlands jointly issued a call for the bloc’s competition authorities to take pre-emptive measures as they prepare sweeping legislation to curb the companies’ market power. 

Cedric O, France’s digital minister, and Mona Keijzer, the Netherlands state secretary for digital affairs, have signed a position paper calling on regulators in Brussels to take swift action against emerging tech giants and existing “gatekeeper” platforms — including options to break them up. 

Proponents of curbing the power of Big Tech argue that structural separation of big platforms would diminish their dominant position and help smaller rivals thrive.

The paper urges regulators to explore measures including forcing the likes of Facebook and Apple to allow their users to take their private data to a competing platform or banning companies such as Google from promoting their own services at the expense of smaller rivals. 

Paris and The Hague have traditionally held divergent views on how to regulate the tech industry, with the French government leading the push for stringent laws against everything from illegal content to strict data protection measures. 

The Netherlands has historically taken a more liberal approach, but has joined a call for tough enforcement of competition rules to prevent tech giants favouring their own services to crowd out rivals and “entrench” their market dominance.

Ms Keijzer said regulators should aim for rules that prevent platforms from becoming “too big” in the first place. But added: “Breaking up big companies can be a possibility.”

“Breaking up [companies] is on the table. But this is the ultimate remedy,” said Mr O. “France and the Netherlands have different cultures and come from different positions. But we have a common interest, from a sovereignty point of view, from a competition point of view to regulate tech players.” 

The push from the capitals comes as Brussels is drawing up landmark new rules on regulating large online platforms, particularly big US companies.

EU regulators are setting criteria that would mean up to 20 companies, including Facebook and Google, would be hit with new and far tougher rules. 

Senior figures inside the European Commission, the executive body of the EU, have also been vocal about the need to restrain Big Tech. France’s EU commissioner Thierry Breton has warned Brussels will consider breaking up large platforms or even force them to sell units in extreme circumstances.

Regulators in Brussels are increasingly ambitious about clamping down on Big Tech. The EU is working on an overhaul of internet rules as part of the Digital Services Act, which will seek to legislate on illegal content, ad transparency and disinformation.

Separately, Brussels is also drafting legislation for the Digital Markets Act, which will include rules against anti-competitive behaviour, removing the need for lengthy antitrust investigations that sometimes take too long and often achieve very little. 

France and the Netherlands have clashed over significant EU policy issues in recent months, including how far to fund the bloc’s upcoming long-term budget and the financing of a €750bn Covid-19 recovery fund. However, they have found agreement in other areas, including a push for tough environmental standards in EU trade deals and joint demands to protect the bloc’s single market from foreign subsidised companies. 

Ms Keijzer said the countries’ alignment on Big Tech was a sign they were willing to meet each other “halfway” in their demands for the Digital Services Act. Mr O said the joint position on technology regulation was a clear indication of both countries’ support for the EU’s efforts to curb the power of Big Tech.