FINANCE: Fosun Finds Challenger In Club Med Bid
Bottom line: Fosun should drop out of the bidding war for Club Med to avoid overpaying for the resort operator, despite big potential from a possible Asia expansion.
Chinese investors aren’t the only companies with big money to spend on global M&A for undervalued western assets. That’s the lesson that high-flying private equity firm Fosun International (HKEx: 656) is quickly learning, as it gets sucked into a bidding war for French holiday resort operator Club Med (Paris: CU). This particular bidding war is one of the first I’ve seen for a major western asset involving Chinese bidders, and could presage more competition from local western investors who want to take advantage of the many assets now now being sold at bargain prices.
We’ve heard vague reports of rival bids for other global assets recently sold to Chinese buyers, including 2 landmark hotels bought by insurance companies Anbang and Sunshine Insurance in New York and Sydney, respectively. But the people who broker such deals often exaggerate claims of rival bids to make the assets being sold look more attractive. It’s only when a bidding war erupts that observers can see the true state of the market, which is what’s happening now with Club Med.
According to the latest reports, a fund tied to Italian investor Andrea Bonomi has surprised the market with a new, sweetened bid for Club Med, just 3 days after Fosun’s raised its own offer for the resort operator. (English article) The latest bid of 24 euros per share by Global Resorts SAS is 50 euro cents higher than Fosun’s previous offer, and values Club Med at 915 million euros ($1.1 billion).
The latest bid represents a huge premium over the original 17 euros per share that Fosun had originally offered more than a year ago when it participated in a management-led buyout bid for Club Med together with AXA Private Equity, the private equity arm of one of Europe’s top insurers. (previous post) That offer already represented a 23 percent premium over Club Med’s stock price at the time, meaning this latest offer represents a hefty premium of about 75 percent over the resort operator’s price when the buyout process first began.
Fosun plans to use its Asia connections to open more Club Meds in the region, including in China where millions of newly wealthy Chinese tourists have plenty of money to spend on such vacations. The Italian bidder’s plans are less specific, aiming to privatize Club Med and then stabilize its finances over the next 3-5 years before taking the next major step. The French market regulator has set a deadline of December 19 for Fosun to respond to the latest Italian offer.
Back in May 2013 when I first wrote about Fosun’s original bid, I said that it looked like a smart move by a company that is quickly emerging as one of China’s shrewdest privately owned private equity firms. But more than a year later, Fosun would have to pay quite a bit more to execute its original plan — some 44 percent more if it counterbids with a new offer of 24.50 euros.
Since making its original Club Med bid, Fosun has become quite active on the global stage with a steady string of other major purchases. Those have included leading Portuguese insurer Caixa Geral de Depositos, a major New York office tower and participation in a major new Hollywood film production company. Along the way the company also reportedly was one of the bidders for US financial publishing giant Forbes Media, though it failed to win that bidding process.
Fosun’s Chairman Guo Guangchang is a shrewd businessman, and in this case he clearly sees some big potential in Club Med if the resort operator can expand in Asia and tap the growing market for Chinese tourists. But the Bonomi group also seems quite determined to get Club Med, and I would caution Guo to be careful about his next step and possibly drop out of the bidding to avoid overpaying for the company.
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