A bidding war between Chinese and Italian entrepreneurs for France's iconic Club Med holiday resort operator provided a test of nerves for the bankers, and even led to a change in French law.

Nearly two years after the first shots were fired in the takeover battle for Club Méditerranée – or Club Med as it is better known – 

a Chinese-dominated vehicle has acquired 98% of its shares and is delisting the iconic resort company. This was France's longest ever takeover contest, prompting a change in the law to speed up takeover court cases. Société Générale was sole financial advisor to the winners.

Founded in 1950 by a Belgian water polo champion, Club Med began as a tented camp with lots of outdoor activities on a beach in Majorca. It was listed in 1966 and went on to transform the European holiday business, with its affordable, increasingly family-friendly villages and its proactive staff.

By the end of the 1990s, however, the industry had not only caught up with Club Med but overtaken it. The slump in global tourism that followed the 9/11 terrorist attacks made things worse, and the company's revenues have never regained their 2001 peak.

Break from the old routine

In 2002, the company got a new executive chairman – Henri Giscard d'Estaing, son of former French president Valéry – and a new strategy. This was to take the business upmarket, closing some of the cheaper '3-Trident' villages, extending '4-Trident' villages and opening new high-end '5-Trident' resorts. Today, Mr Giscard d'Estaing also wants the business to become less dependent on Europe, accelerating growth in developing markets such as China and south-east Asia, Brazil and Russia.

The strategy has not yet succeeded, especially as the French economy foundered after the financial crisis, and the company has made net losses in the majority of years since 2002, including two out of the last three. In 2011 it gained two new shareholders. One was Axa Private Equity, then owned by the large French insurer and subsequently spun out and renamed Ardian in September 2013. The other was Fosun, China's answer to Warren Buffet's Berkshire Hathaway, owned by Guo Guangchang. Mr Guo was recently named China's wealthiest investor, worth $4.5bn, by magazine Hurun Report.

Fosun is China's largest private conglomerate, and its holdings range across insurance, banking, asset management, property, iron and steel, pharmaceuticals, mining and media. It is also becoming more international. By the time Fosun and Axa opened the bidding for Club Med in 2013, each owned some 9% of its stock.

One adviser, three clients

Hubert Preschez, head of corporate finance, France, at Société Générale Corporate & Investment Banking (SG CIB), has been a close advisor to Mr Giscard d'Estaing for some years now. Their relationship began while Mr Preschez was at JPMorgan, before he moved to SG CIB in 2010. When Fosun, Axa and Club Med management were formulating their plan to bid for the company, each appointed separate lawyers while mandating SocGen to advise all three of them. Rothschild advised Club Med to avoid any conflict of interest.

"There were two reasons to have a single financial adviser," says Mr Preschez. "One was confidentiality. The other was that, because there were so many things to discuss, it was better to work with one set of numbers, and not to argue over them."

The team organised a feasibility study and due diligence and organised a debt package of up to €240m. In May 2013, the bidders made a cash offer worth €17 a share, a 23% premium to the previous close, valuing the business at €556m. Mr Giscard d'Estaing said this would give the company the breathing space it needed to achieve its strategic goals.

While most of the board backed the offer, its full recommendation was not forthcoming until the bid was increased to €17.50 in June. At this point the board held 14.9% and Fosun and Axa 19.3% between them, adding up to shareholder support for the offer of 34.2%.

At this stage, Fosun and Axa were to be equal partners, saying they might delist Club Med if the offer received 95% take-up. There were plans to build more resorts in China, and to attract more Chinese tourists to existing resorts in Europe and elsewhere. Relisting the business in China was a possibility.

New bid on the block

The bidders were not going to get Club Med that cheaply, however. In July 2013, two minority shareholder groups lodged formal complaints against the proposed takeover. They claimed there were conflicts of interest and that the experts hired to evaluate the offer were not independent. In September an appeals court allowed them to proceed, setting a court date for early 2014.

The problem for the bidders was that the courts were exceptionally busy, and there was little political will to speed up the process. Selling a French treasure to foreign interests, even with a French partner involved, was never going to be politically popular, particularly under the country's first socialist president for nearly 20 years.

The shareholder activists eventually lost in court, but they would still achieve their goal of a higher price. Though the courts rejected their challenge at the end of April 2014, a possible predator had been building a stake. In July, having been told to put up or shut up by Autorité des Marchés Financiers (AMF), the stock market regulator, Italian investor Andrea Bonomi bid €21 a share. That valued Club Med at €790m.

Mr Bonomi's Investindustrial owned 90% of the bidding vehicle, Global Resorts. His partners were South Africa hotel and casino magnate Sol Kerzner, Brazil's GP Investments and Spanish amusement park operator PortAventura.

"The debt market had changed dramatically in the period since the activists began their suit," says Mr Preschez. Then it was difficult to find liquidity. But now cheaper financing was available to any and all.

Mr Bonomi proposed increasing Club Med's spending plans, relying less on China for growth and more on Europe and the Americas, and keeping the cheaper resorts. He said any shareholders who stayed aboard should not expect a dividend for the next seven years.

Up and away

In France, as a rule of thumb, the bid clock runs for six weeks. "Each bid must be green-lit by the AMF before the offer period starts," says Alexandre Courbon, a SG CIB managing director in corporate finance, France. "Any third party has until five business days before the bid's expiry to make a counter-bid."

In September, Fosun and Ardian increased their offer to €22 a share, with the debt package increased to €280m. Mr Bonomi's resources were beginning to be stretched now, and he persuaded US private equity firm KKR to join him as a partner for his next bid in November – at €23 a share, valuing the business at €874m.

The AMF wanted resolution and the tempo picked up in December. But Ardian had offered as much as it was prepared to pay. The new bidding vehicle, Gaillon Invest, was 81.3% owned by Fosun, with Ardian owning only 6.2%. Chinese travel agency U-Tour had 9.4% and the Club Med management 3.1%. In early December it offered €23.50 a share.

Bonomi was back only days later with €24, choosing the day on which Club Med opened an upmarket new ski resort in Val Thorens. Two weeks later, Gaillon Invest increased its bid to €24.60. Club Med was now worth €939m, two-thirds more than the original offer.

"We understood that Mr Bonomi did not succeed in putting together another bid," says Mr Courbon. It seems that KKR had had enough. Global Resorts withdrew its offer on January 2, 2015. It was over. By the time the acceptances were counted, more than 98% of shareholders had agreed to the Gaillon Invest offer, and the mandatory squeeze-out followed soon after.

So that no bid is ever as drawn-out as this one, a new law obliges the French courts to give judgment on takeover cases within a maximum of five months.

The bankers accept that if Fosun had started out as the majority partner, the bid would have been much harder to pull off. But they insist that Club Med will have a better future with the Chinese-led consortium. "Fosun and the management had the clearest strategic vision for the firm," says Mr Courbon.


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