Amber Capital is fighting an exemplary proxy fight at a perfect target, but this might not be enough for victory on Tuesday.

Amber, founded by Joseph Oughourlian, is seeking a majority of the board at Lagardère Group, in a bid to end the long-time reign of Arnaud Lagardère – the son of deceased and well-respected industrialist Jean-Luc – who has tight control via a rarely-used partnership structure with just over 7% of the shares.

Vincent Bolloré-controlled Vivendi bought a near-10% stake in Lagardère just before the May 5 annual meeting. While Bolloré said he bought the stake because he has confidence in the company’s “future prospects”, in France few doubt he did so to help his embattled friend. In a candid piece, independent research firm AlphaValue called the situation an “absolute governance disgrace.”

“We thought that French capitalisme de copains would be part of an exotic past. The farce that a last-minute support to Arnaud Lagardère, a failed manager of Lagardère, amounts to telling us otherwise,” AlphaValue said.

Rare fight

An activist seeking a board majority is almost unfathomable in France, especially so at a storied company such as Lagardère. Dissident success of such magnitude would be quite a feat. Of the 14 proxy contests launched by dissident shareholders between 2015 and 2019, only one led to board seats for the activist, according to Activist Insight Online data.

French companies have relatively strong defenses. Many have anchor shareholders such as founding families and long-term shareholders with double voting rights, while many institutional shareholders are banks with business relationships that incentivizes them to vote for the status quo.
Market regulator Autorité des marchés financiers believes these defense mechanisms may not be enough and recently proposed more transparency on ownership disclosures and communications, saying it wants to spur engagement but control activism’s excesses. The proposal came days after the regulator levied a 20-million-euro fine to Elliott Management for its investment in XPO Europe, where it opposed the company’s delisting after its sale to the U.S. parent.

Change required

Yet the case for change at Lagardère is obvious for many in France. Under Arnaud Lagardère’s 17-year leadership, the company has sold assets to pay dividends and make ill-advised bets on sports and entertainment agencies which it now seeks to undo under pressure from Amber. The stock has underperformed dramatically, but Arnaud Lagardère’s pay continued to be high. “Had it not been for the partnership structure, Arnaud Lagardère would have been fired long ago,” Pierre-Yves Gauthier, AlphaValue’s head of research, said in an interview with Activist Insight Online.

Loïc Dessaint, CEO of local proxy adviser Proxinvest, has told Activist Insight Online that he has been raising concerns about the remuneration, partnership structure and related-party transactions involving Arnaud Lagardère for the past 20 years, but nothing has changed. Proxinvest recommended investors support Amber’s full slate, departing from international peers Institutional Shareholder Services (ISS) and Glass Lewis, which largely agreed with Amber’s criticism but recommended for partial change. Dessaint said “a complete refreshment of the board is needed to negotiate” with Arnaud Lagardère, who is the only one who can scrap the partnership structure.

Indeed, replacing the board is just one step towards wholesale change. The key challenge will be to remove Arnaud Lagardère as a partner, a mandate that needs to be renewed in 2021. If the board does not approve it, then it will be put to a shareholder vote. But another possibility could see Lagardère buying Arnaud Lagardère’s stake outright, according to ISS.

Bold move

In addition to the odd holding structure, Arnaud Lagardère’s coziness with high profile business and political figures in France gives him further protection. Ex-president Nicolas Sarkozy agreed to join the board along with the former chairman of the French national railway, Guillaume Pepy, days before Amber launched the campaign. “They saw us becoming more vocal about the need to review the company’s current governance and strategy and called Sarkozy at the last moment,” Amber’s Joseph Oughourlian said in an interview with Activist Insight Online.

The last-minute appointments and the COVID-19 pandemic were not enough to stop Amber’s assault.

“We thought very carefully about launching the proxy contest and we felt it was an act of responsibility after the company announced the dividend payment this year whilst indicating lack of visibility on the future evolution of the core business. More than ever our action is necessary,” Oughourlian, who is leading the proxy fight from home, said. In light of the pandemic, Lagardère initially reduced its dividend and then scrapped it altogether.

The activist has proposed Patrick Sayer, the highly-regarded former CEO of asset manager Eurazeo, as chairman of the new board – after about a year spent persuading him to embark on this project. For Sayer and other nominees who are part of the establishment, making changes at Lagardère made sense but stepping forward meant they had to take risks. According to Oughourlian, this shows courage.

“Our guys have guts and are ready to step up, their guys are empty suits,” Oughourlian said, adding shareholders have to choose between “this management who has destroyed value” and “a new supervisory board really acting in the interest of shareholders to build a stronger Lagardère.”

“Being a shareholder for a long time doesn’t necessarily mean having a long-term view,” Oughourlian explains, referring to Arnaud Lagardère’s sale of assets over the years to pay dividends rather than investing in the core business.

The company did not reply to a request to contribute to this article.

New light

For the French public, the fight can put shareholder activism in a new, perhaps better light.

Amber has been invested for about four years, enough to show that it is a committed long-term shareholder, and there are few in France who think Arnaud Lagardère deserves to continue. “They [Amber] are patient, they want to remove the partnership and they are very active in trying to explain the situation to stakeholders,” Gauthier said.

The more immediate effect of Amber’s campaign is that companies will be adding to their defenses. Dessaint said he saw this year more issuers interested in identifying their shareholders before the annual meeting.