This article was first published on Activist Insight Online on April 17, 2020. For more information about the module, click here.
Institutional Shareholder Services (ISS) has recommended shareholders vote in favor of five nominees advanced by Amber Capital to the board of Lagardère Group and the removal of five incumbents. ISS advised a vote in favor of the removal of Chairman Patrick Valroff and for the appointment of Patrick Sayer, Amber’s pick to head the board.
ISS’ recommendation falls short of the majority sought by Amber and might result in a hung board with the employee representatives holding the swing vote. Two of the 12 members are appointed by the company’s employees. The board’s vote will be particularly important when the term of managing partner Arnaud Lagardère ends in 2021 and needs to be reconfirmed.
Amber’s goal is to remove Arnaud Lagardère and the outdated governance structure through which he controls the firm despite owning a stake of just around 7%.
“We agree with the dissident’s argument that converting the company from a limited partnership to a standard French corporation would be beneficial, as it would make management more accountable to shareholders and eliminate a powerful antitakeover device,” ISS said in its report, a copy of which was seen by Activist Insight Online. ISS also agreed with Amber’s criticism that the company’s performance has been suboptimal for a long period and the pace of changes has been very slow.
The company agreed to follow Amber’s recommendations in focusing on the firm’s core travel retail and publishing businesses and ditch non-core assets, but Amber criticized the lack of urgency in making the decisions. ISS agreed with that argument.
In recommending against giving the dissidents a majority of the board, ISS said that Amber “has failed to articulate a sufficiently detailed go-forward plan, including a suitable potential replacement for management – essential components under ISS’ framework for control contests, which considers the risk of disruption.”
Amber welcomed the ISS endorsement but said the changes required “to drive a true transformation of the group can only be achieved through a complete overhaul of the supervisory board.”
The outcome of the vote is difficult to predict. Arnaud Lagardère cannot vote his voting rights amounting to 11% of the shares, but Qatar Investment Authority controls nearly 20% of the votes and is believed to be close to the current management. Amber owns 11.7% of voting rights but it is unclear if it has any allies. The French state controls another 5.5% and employees 2.6%.
A report from local publisher Les Echos indicated that French tycoons Vincent Bolloré and Marc Ladreit de Lacharrière might help Arnaud Lagardère by buying shares in the firm.