Colony Capital’s ‘Fearless’ Bazin Shakes Up Accor, Carrefour

Dec. 14 (Bloomberg) -- Everywhere Sebastien Bazin goes, people lose their jobs.

Bazin, who runs the European operations of Colony Capital LLC for billionaire American real-estate investor Thomas J. Barrack, helped oust Accor SA Chief Executive Officer Jean-Marc Espalioux in 2005, six months after investing in the continent’s largest hotel company. This year, Accor Chairman Serge Weinberg and five board members resigned in a clash over governance with Colony, the hotelier’s biggest shareholder.

In 2008, Carrefour SA’s CEO, Jose Luis Duran, was forced out, a year after the Los Angeles-based real-estate investment firm moved onto the board of the world’s second-largest retailer. And Bazin made headlines for sacking two presidents of the firm’s Paris soccer club, Paris-Saint-Germain, in two years.

“I take my share of responsibility, but it was never premeditated,” Bazin, whose firm’s $30 billion in investments range from Las Vegas-based Station Casinos Inc. to Michael Jackson’s Neverland ranch in California, said in an interview in Paris. “I am not looking for troubles nor take pride in creating them, but I am ready to make unpleasant decisions to protect or boost Colony’s investments.”

The 48-year-old French maverick is indeed under pressure. Colony is facing more than 700 million euros ($1 billion) in paper losses on its stakes in Accor and Carrefour, which were built at the peak of the market and represent about half of its fund in Europe. Colony’s 1 billion-euro European fund, Colyzeo II, was down 63 percent last year, according to Eurazeo SA, the largest investor.

Board Vote Tomorrow

Bazin is, therefore, pressing for faster changes at the companies. Tomorrow, Accor’s board may approve a proposal, backed by Bazin and opposed by the company’s unions, to split its cash-rich voucher-services unit from its hotel business, where revenue is declining. He also wants Carrefour to sell part of its real-estate assets and some international operations.

In doing so, he’s unsettling the French establishment, including state-owned bank Caisse des Depots et Consignations, which opposes Colony within Accor’s board over splitting off the voucher unit. Reports about a possible sale of Carrefour’s operations in emerging markets prompted an editorial in French daily Le Monde accusing a “restless,” “short-term-oriented” Colony of forcing the national champion to sell fast-growing assets for a quick buck. Meanwhile, PSG supporters, angry at the club’s disappointing results, gather on Facebook to wish Bazin gets swine flu.

‘Doing His Job’

“Colony is shaking up Carrefour and Accor, and some people, who are used to quiet boards, don’t like it,” said Colette Neuville, head of Paris-based ADAM, which represents minority shareholders. “Sebastien Bazin is only doing his job, and that’s a good thing. Board directors aren’t there to sit quietly with their arms crossed.”

Carrefour spokeswoman Helene Saint-Raymond declined to comment on Bazin’s role on the board, as did Accor spokesman Alain Delrieu.

Private equity firms from New York-based KKR & Co. and Blackstone Group LP to London-based BC Partners Ltd. diverged from a strategy of taking over companies to also building minority stakes in large publicly held companies after they raised record funds before the crisis. They asked for board representation and vowed to be influential shareholders to create value.

Outbid for Hotels

In 2004, Bazin, who had been buying and selling real estate in Europe for Barrack since 1997, was outbid by 40 percent when trying to buy 120 Accor hotels. He said the European market was too competitive to deliver the 20 percent or more annual return Colony’s investors expect.

“I called Tom Barrack and said what about buying Accor shares directly?” Bazin said, sitting on his black leather couch in his office, a five-minute walk from the Champs Elysees.

In March 2005, Colony gained CEO Espalioux’s backing to invest 1 billion euros in Accor in return for two seats on the board. Bazin was soon in a board fight.

That September the two founders, backed by Colony, sought to replace Espalioux, who had been CEO for nine years, to boost profit. Bazin and two other board directors screened candidates and settled on Gilles Pelisson, nephew of Accor co-founder Gerard Pelisson.

The choice angered directors including BNP Paribas SA’s CEO Baudouin Prot, Societe Generale SA’s deputy CEO Philippe Citerne and Caisse des Depots CEO Francis Mayer, who sought to curb the founders’ influence over the hotelier. Serge Weinberg, former CEO of PPR SA, the owner of Gucci Group, was recruited as chairman to patch up the rift.

Access Denied

Part of Weinberg’s job was to keep Colony at bay, three people familiar with the situation said. He enlarged the board to 17 members from 15 with independent directors, diluting Bazin’s power. He also denied Colony direct access to management outside the boardroom, two people familiar with the matter said.

In January 2008, French investment firm Eurazeo started building a 10.2 percent stake in Accor and later gained two board seats. Colony and Eurazeo, which together own about 30 percent of the company, sought to reduce the board to 12 and also give CEO Pelisson the chairman’s job. Outnumbered, Weinberg and five other directors resigned in January.

Boards can’t work efficiently when they are too large, Eurazeo CEO Patrick Sayer said. “There’s a reason why the apostles were 12, or why the U.S. jurors are always 12,” he said. France is heading toward a governance model in which “boards work hard and challenge management,” he said.

‘Creeping Takeover’

On his way out, Weinberg criticized “shareholders with a determinant influence on the company’s future” for having “elevated debt levels,” saying they may urge decisions for Accor that aren’t in other investors’ interests. Weinberg said the board tried to get guarantees to avoid “creeping takeover.”

Weinberg declined to comment when contacted by Bloomberg News. Gilles Michel, CEO of the CDC’s FSI fund, which has a 7.5 percent stake in Accor, said splitting the voucher and hotel units isn’t necessary and may put the company “at risk,” he told French newspaper Le Figaro Dec. 11. Bazin declined to discuss specific proposals for Accor or Carrefour.

Blue-eyed and a self-deprecating joke never far from his lips, Bazin “looks like the perfect son-in-law,” said Matthieu Pigasse, Lazard co-deputy head in Paris, who sits with Bazin on the board of casino company Groupe Lucien Barriere SA and advised Canal Plus, the pay-television unit of Vivendi SA, in the PSG sale. “The reality is he’s tough in business, sharp and quick, and he’s a very active investor.”

Different Background

Bazin, whose father was also in real estate and who grew up in the wealthy Paris suburb of Boulogne-Billancourt, buys abstract art on a whim by painters such as Joan Miro of Spain or Francois Morellet of France. He is a member of the select Saint- Cloud golf club where U.S. president Dwight Eisenhower and California governor Arnold Schwarzenegger once played. French president Nicolas Sarkozy sat next to him at a PSG game.

Yet, he is an outsider among those who have long dominated French boardrooms, said Neuville, the shareholder activist.

“Board directors have been recruited from a limited pool of people who went to the same French schools, held government jobs and have a tendency to scratch each other’s backs,” said Neuville, who witnessed Bazin’s roughness as negotiator when she pressed for a sweeter Colony bid for steakhouse chain Buffalo Grill SA in 2006. “Sebastien Bazin doesn’t have the same background.”

Kaiser Battle

The French businessman, who graduated from the Paris Sorbonne, started as a junior banker in the U.S. advising British corporate raider Alan Clore, one of his father-in-law’s clients. In 1986, he helped Clore and his U.S. business partner Joseph Frates take over Oakland, California-based Kaiser Aluminum Corp. after a $1.2 billion bidding war. Bazin helped fire the CEO and sell international assets. After the 1987 market debacle, Clore was forced to a fire sale to reimburse the debt used to fund the takeover.

Traveling the world to find a buyer for Clore’s stake, Bazin, then 26, flew to Careyes, on Mexico’s Pacific coast, to meet with Franco-British financier James Goldsmith, who was building a villa there. Bazin was overwhelmed by the encounter.

“Having to do business with such a fierce financier made me fearless,” he said. Very few entrepreneurs have impressed him since then, he said, one of them being LVMH Moet Hennessy Louis Vuitton SA CEO Bernard Arnault, with whom he invested in Carrefour.

Soccer Team Lags

Bazin’s eclectic investment choices such as the acquisition of PSG, valued in 2006 at 26 million euros, have hurt his image as an investor. The soccer team has lagged behind in the rankings of the French league, never made it to the European Champions League since Bazin bought it and has lost 10 million to 20 million euros a year, Bazin said. Colony’s idea to renovate the Parc des Princes stadium to offer more services and boost revenue for the club hasn’t materialized.

Bazin and Arnault’s surprise move on Carrefour a year before the severest recession in 70 years has also proved challenging. The retailer’s shares have tumbled to 32.90 euros from about 55 euros in 2007. The idea of spinning off Carrefour Property, the entity created to manage half the retailer’s real estate assets and which bills market rents to the group’s hypermarkets and supermarkets, has been put on hold. The company may sell a stake in the unit next year if the real estate market recovers, two people familiar with the matter said.

‘First-Class Job’

“I am not judging day-to-day vagaries of a global tsunami,” Barrack, Colony Capital’s founder, chairman and CEO, said in a telephone interview from Los Angeles. “I am confident our investments in Accor and Carrefour will deliver good performance in the next five years. We’re prepared to stay for the long term.”

Barrack said Bazin has done “a first-class job” over the last decade. “Because he’s not from France’s exalted clubs, we’ll get criticism,” Barrack said.

When Le Monde, citing unnamed people close to Carrefour’s management, reported in September that Colony and Arnault pushed the retailer’s board to sell operations in China and Brazil to address their own liquidity issues, some French investment analysts objected.

“I don’t see the rationale behind it,” said Jean-Marie L’Home, an analyst at Paris-based brokerage Aurel-Leven SA. “It’s a very short-term strategy that would ultimately destroy the company’s value.”

Investor Support

U.K. and U.S.-based investors have been more willing to give Colony the benefit of the doubt. By selling operations outside of Western Europe, Carrefour could raise proceeds equivalent to its entire current market value, said London-based JPMorgan Chase & Co. analyst Jaime Vazquez. That would allow the retailer to pay a dividend of 34 euros a share, about equivalent to its share price, while maintaining its current level of debt, Vazquez said.

Carrefour in a statement denied it is planning to sell operations in emerging markets.

Bazin said Colony has no liquidity issues. Less than 50 percent of its Accor and Carrefour stakes was bought using debt, he said. The fund pushed back maturities of the loans used to buy Carrefour shares, in line with its shareholding strategy, he said. Still, the firm has far to go to wipe out the 63 percent decline posted by Colyzeo II last year.

“Colony’s investors know all about the gains or losses of the funds,” he said. “The questions they ask are do we control our destiny, and do we have staying power? In both cases, the answer is a firm yes.”

To contact the reporters responsible for this story: Anne-Sylvaine Chassany in Paris at achassany@bloomberg.net; Ladka Bauerova in Paris at lbauerova@bloomberg.net;

To contact the editors responsible for this story: Edward Evans at eevans3@bloomberg.net;