* Tender period closing on Friday – Outcome uncertain
Gaillon’s takeover bid at EUR17.5 (8% below current stock price) will expire on Friday and cannot
be sweetened by law. Gaillon Investment (which should gather around 38% of the capital with its
partners) could launch a totally new bid but we doubt it will (it could have sweetened it last week)
and we doubt there will be counterbids. Funds that have declared they will not tender (B&G,
Strategic, Moneta, Benetton) represent 22% of the capital, on top of which we think a further 10%
at least will not tender either. Either the bid is successful (and the stock price falls back towards
EUR17.5) or it fails to reach the 50% threshold (condition set for the success of the bid) by Friday
raising more doubts on the future of Club Med.
* Uncertain outlook if the bid fails
Were the bid to fail, management would be significantly destabilized. Development might suffer,
especially in China were Fosun to exit at some stage (even if its contribution has not been obvious
so far). Strategic Holdings may have a hidden plan in Italy/Spain for the group (together with the
Benetton family which used to be involved in the sector), visibility will remain quite poor and would
not offset a worse outlook in China. With summer bookings down heavily (-3%), and new troubles
(Thailand, possibly Egypt, Chinese boycott of Malaysia) we think consensus should revise down
quite sharply. We have lowered our estimates for Village operating income in 2014e to EUR51m
from EUR64m. We think the company is unlikely to hit its 10% EBITDA margin in the next two
years.
* SOTP lowered from EUR20 to EUR17
We have revised down our valuation to EUR17 from EUR20 to reflect our new forecasts. A bull
case would point to EUR22 under more flattering assumptions on asset management, but seems
unlikely on a two-year horizon. A scenario of a sale & leaseback of 40% of the assets portfolio
based on 2015e earnings gives a fair value of EUR17, and would value the group at 15.7x reported
EBIT 15e and 23x P/E 15e. The challenges facing the group (achieving profits in the low season,
raising prices in a deflationist sector, 45% clients from France/Belgium) are unchanged.