A Raider Rides Into France

Pinault's bid for Worms marks the rise of Anglo-style hostile deals

When Francois Pinault met his friend, intellectual Bernard-Henri Levy, at Paris' Cafe de Flore for breakfast on Sept. 20, he didn't even mention the $5 billion hostile takeover he had launched the day before. Instead, Pinault, the 61-year-old entrepreneur gunning for French conglomerate Worms, chatted about modern art.

Such behavior is characteristic of the secondary-school dropout whose sly dealmaking leveraged a tiny family lumber business into a 70,000-employee conglomerate. Pinault's $68-per-share bid took Worms Chief Executive Nicholas Clive Worms completely off guard. Nearly a week after Pinault made his offer, Worms's top brass still hadn't issued a coherent response or chosen an investment bank to help mount a defense. A source close to the company says officials want to "take some time to think about it as serenely as possible."

COUNTEROFFER? Even with surprise on his side, it's unclear whether Pinault can prevail. His offer represents a modest premium over Worms's $65.56 share price before the bid was announced. Pinault must convince members of the Worms family, which still controls 22.1% of company stock, and Italy's Agnelli family, whose investment company Ifil owns 20%, that they can't get a better deal elsewhere. A source close to the Worms family says it's not interested in Pinault's offer. The Agnellis say a buyout doesn't appeal to them, either. Still, analysts and investment bankers think a counteroffer is possible from a company attracted to Athena Assurances, Worms's profitable insurance company and crown jewel.

Whatever the outcome, Pinault's gambit marks a turning point in the way French companies are bought and sold. In the past, most deals were dictated by a cadre of technocrats who orchestrated mergers behind closed doors, then announced that the deals would strengthen France. Now, raiders and investment banks are driving the action, looking for quick profits and fat fees (box). The Worms battle "heralds the arrival of Anglo-Saxon-style capitalism in France," says a London banker.

Takeover targets are getting more plentiful. As Europe faces mounting global competition, many of France's unwieldy conglomerates are restructuring. In fact, recent changes at Worms--a holding company with assets from sugar to food to paper companies besides its insurance business--may have made it vulnerable. Its lackluster banking arm, Demachy Worms, was sold off in early 1997. Saint Louis, a private holding company controlled by the Worms family, was merged with the publicly traded holding company. And the double voting power of some family-owned shares was abolished. These moves, designed to improve shareholder value, opened the door to a hostile bid by putting more shares into play.

Pinault's attack has all the earmarks of an American, 1980s-style raid. Despite his claims to the contrary, he probably hopes to gain control of Athena and then resell it quickly. All of the proposed $5 billion purchase price will be loaned by four banks: Credit Lyonnais, J.P. Morgan, ING Barings, and Credit Agricole. Pinault would need to sell assets to avoid crushing interest payments--and Athena is the most salable of the lot. Indeed, since spring, Worms and investment bank Morgan Stanley, Dean Witter, Discover & Co. have shopped Athena around to potential buyers for about $2.3 billion. Prospects balked at the high price tag. Pinault, curiously, never expressed interest, say Worms officials.

To get Worms shareholders on his side, Pinault may have to sweeten his offer. But stiff capital-gains taxes put a limit on how high he can go. A source close to the deal says many Worms assets are booked at low prices. That could saddle a breakup artist with taxes of at least $850 million. Analyst Claudie Casimir of ABN Amro in Paris figures Worms's assets are worth $5.9 billion, accounting for taxes and outstanding convertible bonds.

Still, Pinault has a long history of making deals and walking away richer. The son of a Breton lumber merchant, Pinault dropped out of school at 16 to work at the family sawmill. He launched his own distribution company in 1963 in Rennes. He then proved adept as a dealmaker, buying dozens of small lumber concerns. In 1987, he bought papermaker Chapelle-Darblay for $116 million, turned it around, then resold it to a Finnish buyer at an $87 million profit. Most daring of all, in 1993 he bought a portfolio of junk bonds from Credit Lyonnais. He has resold some of them, pocketing profits estimated at up to $830 million. The bonds he still holds give him stakes in numerous U.S. companies, from Colorado's Vail ski resort to the maker of Converse tennis shoes.

Friends say Pinault disdains France's inbred Establishment. Yet he's well connected with such figures as President Jacques Chirac. If Pinault makes U.S.-style raiding more common, his pals in high places will probably let it happen.

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