Bollor矰lays waiting game

As economic storm clouds gather, Vincent Bolloré’s group looks as if it has no choice but to dig in for the long term in its siege of Aegis, says Bob Willott

Aegis Group chief executive Robert Lerwill must be getting heartily sick of Vincent Bolloré and his French cohorts camping on his lawn, hoping that one day they will be let in.

Clearly he has been more polite in his communications with the French than when Martin Boase famously exhorted another French group BDDP to “frog off” after his agency, BMP, became a takeover target in 1989.

Bolloré makes play of the fact he is taking the “long view”. However, his presence will prove a continuing distraction that could divert Aegis management’s priorities away from the strategic imperative of building an even more successful group, and he may find the end game far less profitable than if he had made a quick escape last summer when he could have pocketed a £100m gain before the Aegis share price fell.

Since the turn of the year, Aegis shares have recovered some of their lost value. but Bolloré still faces the prospect of a loss on his investment if the price falls again. So arguably he needs to keep a bid prospect in the sights of the investment community to protect the value of his investment.

It is hard to find anything that has happened since Bolloré first began to buy shares in Aegis in summer 2005 that would make a French liaison seem more appealing to the majority of Aegis shareholders today. The attractions to Havas are more obvious – greater market share in media buying, a stronger presence in the digital market and the prospect of adding a substantial research business. All of this might help Havas to overcome some of the constraints of being wedded to a relatively traditional portfolio of hitherto underperforming businesses.

In performance terms, Bolloré Group has stumbled along with little change in operating profit. It has made most of its money not from its operations but from selling share stakes it has built in other companies. For example, over the past two years it has supplemented its operating profit with a €887m (£633m) gain on disposal of a minority stake in steel-maker Vallourec – just before that company’s profits declined.

The group has been using its 32.9% stake in Havas, where Bolloré is now chairman, to make management changes that seem to have had an initially positive impact, but Havas still achieves comparatively poor profit margins compared with Aegis.

Unlike its suitor, Aegis can claim a healthy and consistent growth in operating profit (see chart). The unanswered question is whether an independent Aegis can continue to grow at a good rate without a step change in the size of its business offering.

The other relevant question is whether Bolloré or Havas could finance an outright bid for a more profitable company.

The cost of a successful bid, even in the currently uncertain climate, is unlikely to be less than £1.5bn for the 70% of Aegis not already in Bolloré’s hands. Such a price would put pressure on the Bolloré balance sheet if paid in cash unless, as has been speculated, he plans to sell on the less profitable research business. Any attempt to offer shares in the French company as a partial alternative would not be popular in the UK.

It looks as though Bolloré is locked in for the long term whether he likes it or not. If he quits now he will almost certainly suffer a loss. If he makes an outright cash bid at current prices without a deal to sell on the research operation, he will put his own balance sheet at risk. But if he waits, an economic downturn could hit Aegis profits and make it a cheaper purchase. Conversely, if Aegis continues to prosper, Bolloré may eventually be able to sell his existing holding at a good profit, fold up his tent and leave Lerwill in peace. 

Bob Willott is editor of Marketing Services Financial Intelligence