Andrea Bonomi, the Dealmaker Challenging Club Med's Go-Private Bid
Andrea Bonomi had 72 hours to put together a billion dollars. It was Friday, May 23, and the 49-year-old heir to one of Italy’s old industrial families had received an ultimatum from France’s market regulator, the Autorité des Marchés Financiers: Make a formal bid for Club Méditerranée—Club Med—or be barred for six months from attempting a takeover while another investor group and the current management tried to take the company private.
Through his investment fund, Strategic Holdings, Bonomi had been amassing shares in the famed all-inclusive resort chain, and the AMF wanted him to declare his intentions. As his stake approached 10 percent, Bonomi had become the single biggest shareholder, putting him in position to derail the separate takeover effort, already in the works and backed by the Club Med board. “The put-up-or-shut-up gives you three days,” Bonomi says. “Three days—Saturday, Sunday, and Monday, which was a bank holiday in the U.K. and Memorial Day in the U.S.—to decide whether you want to make a billion-dollar transaction.”
Until that afternoon, Bonomi hadn’t intended a takeover. “They made us,” he says, shrugging. He’s relaxed, sitting in his office in Lugano, Switzerland, an Italian-speaking enclave an hour’s drive from Milan. His windows open over a colonnaded street of watch shops and offer views of Lake Lugano. He’d started buying Club Med shares, Bonomi says, with the sole intention of spurring a turnaround of the unique brand of late-20th century leisure that had managed to combine a vision of care-free, tropical escapes, social egalitarianism, and free sex under one thatched roof—and had been in decline for more than a decade. Despite receiving 1.3 million “members” last year at 66 properties (and on one cruise ship), Club Med lost €11 million ($15 million) for the 2013 fiscal year, and revenue was 29 percent below its 2001 level. “It’s hit a bad spot,” says Vanessa Rossi, global economics adviser to Oxford Analytica, a consulting firm based in Oxford, England.
What the ultimatum made clear to Bonomi was that even though he’d acquired more of the company’s shares, he could lose his shot at shaping its future. So Bonomi worked through the weekend. As he juggled calls, two Italian banks—Intesa Sanpaolo and UniCredit—agreed to lend money for the deal, as much as €240 million of debt. He went to his roster of investors, which includes Ivy League college endowments and pension funds. They, too, agreed to chip in on the offer through the private equity firm he runs, Investindustrial. By the end of Monday, May 26, Bonomi made the deadline, armed with letters of intent and ready to lay siege to Club Med.
In the days that followed, executives from his firm fanned out to visit Club Med resorts in Sicily and Portugal and examined the company’s books. Real estate consultants who visited nine resorts found the underlying properties held more value than they’d been given credit for. On June 30, Bonomi made it official: He offered €21 a share, topping the competing management-backed proposal of €17.50 that has been pending since last year. The bid valued the company at about $1.1 billion. “Club Med is an old-mentality business,” says Bonomi. “If you run out of ideas, you must pass the baton to the next guy.”
Bonomi has had mixed results being that next guy. He had an undeniable success restoring Italy’s Ducati motorcycle company. He didn’t do as well attempting to transform a Milan cooperative bank. In any event, Bonomi’s move on Club Med is the highest-profile deal of his career—and his biggest battle. It pits him against Club Med’s chairman and chief executive officer, Henri Giscard d’Estaing, whose father was France’s president from 1974 to 1981, and Chinese billionaire Guo Guangchang, chairman of the $48 billion-asset Fosun Group, whose other overseas investments include New York’s 60-story One Chase Manhattan Plaza. Together, Guo and Giscard d’Estaing have been spearheading Club Med’s strategy of cultivating newly mobile Chinese tourists as clients and concentrating on the company’s more expensive five-star, or 5-Trident, resorts.
Bonomi’s bid for Club Med amounts to a counterintuitive bet that recession-rattled Europeans still need to spend their ample vacation time somewhere. Instead of leaning on China for growth, he proposes a focus on the Americas and Europe as well, especially in France, where he wants to open a store in Paris. Instead of pulling back on cheaper resorts, he proposes maintaining the 3-Trident destinations, where beds can be simple wooden frames with a mattress and no box spring, and room rates can cost a third of those at a 5-Trident. In all, his plan would bring €150 million of additional investment and add 5,000 beds, for a total of 20,000. As a result of the expense, he’s warned that shareholders who don’t surrender their shares in his offering shouldn’t expect any dividends for the next seven years.
Despite Bonomi’s Eurocentric plan, Club Med’s French management has reacted as if Bonomi is violating its national sovereignty. Giscard d’Estaing claimed the resort company needs French “anchorage.” In an interview with the newspaper Le Figaro published on July 4, he backed the lower, French-Chinese offer, which would guarantee a French majority. “Any change that is not based on a real and profound knowledge of Club Med, its business, and its values would be dangerous for him,” Giscard d’Estaing said, adding that Bonomi “only wants to take control.” In an e-mail to Bloomberg Businessweek, he added that “it would be a colossal mistake to deprive ourselves of this unique advantage”—referring to the partnership with Guo. Bonomi, who says he still wants to work with management, can’t even bring himself to call the bid hostile. “It’s nonfriendly,” he says. “Competitive.”
They’re fighting over an institution that helped define post-World War II leisure among Europeans and then became the mold from which much of the world’s resort and package tourism is derived. It began in 1950 when a Belgian water polo champion set up huts and army tents on the Spanish island of Mallorca. He opened an office in Paris, and in the first years Club Med was an actual club with dues-paying members and run as a nonprofit association. In a culture that largely survives today, the staff became known as GOs, or gentils organisateurs (kind organizers), and mingled, ate, and played with guests, who were known as GMs, or gentils membres.
Even after the company went public in 1966, an egalitarian vibe permeated the villages, as the resorts are known. Meals were taken at communal tables. GOs and GMs addressed each other in the familiar French tu. The introduction of “bar beads” for use instead of cash for premium items (e.g., alcoholic beverages) removed signs of status from the outside world. (Ironically, the interlocking beads did become a status symbol, like a ski lift ticket on a parka zipper, when worn as a bracelet back home.)
As the club expanded into a global resort chain in the 1970s, tales of after-hours escapades stirred the public’s imagination, culminating in the 1978 cult comedy Les Bronzés. Titled French Fried Vacation in English, it depicted one GO’s attempt to seduce a record number of women. In reality, the company was evolving to cater to both singles and families at different locations. Parents could drop off kids at supervised activities while they hit the beach or the slopes. In Europe, Club Med became a place where families felt safe sending teenagers on their first vacations with friends.
The all-inclusive concept became so popular that by the 1990s several competitors had copied the idea, some at cut-rate prices. In the Caribbean, Jamaica-based Sandals Resorts International built a chain that provided an all-inclusive experience without the quirky Club Med culture. The rise of cruising buoyed companies such as Carnival, which became the go-to choice for holidaymakers who wanted limitless food. In the U.K., the windows of High Street travel agencies filled with offers from companies such as TUI Travel that made Club Med look expensive.
The global tourism slump that followed the Sept. 11, 2001, terrorist attacks pushed Club Med to the brink. Revenue, which was €1.99 billion in 2001, hasn’t hit that mark again. Carnival, by contrast, has increased its revenue more than threefold since. When Giscard d’Estaing became chairman in 2002, he began a recovery strategy focused on a wealthier clientele, closing some of the cheaper 3-Trident villages and opening top-end 5-Trident resorts. Despite his efforts, Club Med has had a net loss in all but four years since 2001.
The recovery shouldn’t be taking this long and points to deeper challenges for Club Med, from the rise of Internet travel sites to a brand-name associated with a region in financial crisis, says Oxford Analytica’s Rossi. “What seemed like a good formula 20 years ago has gone a bit stale,” she says.
Enter Guo, 45. Using Warren Buffett as a model, he’s amassed a fortune estimated at $5.5 billion by the Bloomberg Billionaires Index. Club Med became Fosun’s first overseas deal in 2010, when it built a stake of about 10 percent. Six months after Fosun’s original investment, Club Med opened its first resort in China. The management plans to have opened five resorts in the country by 2015, making China the company’s largest market outside France. Last year, with Giscard d’Estaing’s support, Guo joined French shareholder Ardian Sarl—the former Axa Private Equity—in the bid to take Club Med private.
To Bonomi, the strategy is another instance of Club Med getting it wrong—like the time in 2001 when it expanded into French health clubs. “The latest fad they’re following is China,” he says. Bonomi is at pains to avoid being perceived as provincial. His blue shirt is monogrammed on its torso with Chinese characters in red thread, a touch from his Hong Kong shirtmaker. He says he’s willing to form a partnership with Fosun if it drops its bid, and he wouldn’t give up on China. Despite Giscard d’Estaing’s claims to the contrary, Bonomi says his bid reflects greater fidelity to the company’s roots. “Club Med DNA originated in Europe and is perfect in Europe,” he says.
Turning around Club Med’s businesses in Europe would certainly be cheaper than breaking new ground abroad, says Ron Adner, a professor of strategy and entrepreneurship at the Tuck School of Business at Dartmouth College in Hanover, N.H. “The appeal of Europe is that it’s a smaller fix,” he says. “There was a day in which Club Med was an ‘it’ brand. The challenge is to revive the properties as well as the cachet.”
One trend Club Med latched on to is chasing luxury dollars. This, too, was misguided, Bonomi says. To illustrate his point, he cracks open a Club Med catalog and points to pictures that resemble Four Seasons knockoffs. There are beach beds in dark wood and ivory-colored fabrics and a plate of tall food—a seared scallop or maybe a veal medallion atop vegetables, all held together with a wooden skewer. For a resort known for its buffets, this fancy stuff makes no sense, he says. “The moment you move it up and you try to picture more, like this,” he points to the catalog, “then you’re competing with everybody.”
For the takeover offer, he corralled industry expertise to advise his bidding group, dubbed Global Resorts, of which his Investindustrial owns 91 percent. One partner is South African billionaire Sol Kerzner, known for building the Atlantis resorts in the Bahamas and Sun City in South Africa, which was a target of anti-apartheid protests in the 1980s. The others are Brazilian private equity firm GP Investments and the management of PortAventura, a Spanish amusement park company that itself is undergoing a Bonomi turnaround and of which he’s already sold 49.9 percent to New York-based private equity firm KKR. Bonomi says Club Med could learn from the amusement park, which uses flexible pricing to manage its revenue. “When we arrived, Club Med changed their price twice a year. We change our price twice a day at PortAventura,” he says. “You have to be dynamic.”
The most striking thing about Bonomi’s Swiss office isn’t the lake view, but the contemporary photography that hangs on the walls of the two-level space. The collection, the work of a younger brother who has a gallery in Milan that specializes in photography, includes a floor-to-ceiling print by Andy Warhol protégé David LaChapelle, depicting people in a flooded cathedral.
The conference room is also hung with photographs: one, of a Brazilian favela, is actually a composite of buildings that don’t exist; another is a trompe l’oeil of a jungle through a hole in what looks like a parking garage. Bonomi chose the images carefully, “because management comes here and tells us all kinds of stories, these are only fake things.”
There was a time when Bonomi’s family had the kind of power that inspired plots against it. His great-grandfather, an architect, built the foundations in real estate, followed in the 1950s by his grandmother, Anna Bonomi, who became known in Milan as Lady Finance as she diversified into chemicals, banks, insurance, and mail order. Andrea was born in New York in 1965, while his father, Carlo, worked for banks there, training to take over the business. Today, Bonomi holds only a U.S. passport.
When the family returned from America, kidnappings in Italy had made the country dangerous for a high-profile heir. Bonomi was 8 years old when he left for a boarding school near Cannes. When he was 14 he moved to London, attending a French school and living with three servants—and no family members—in a house on Eaton Square. “It was safe,” he says.
For college, Bonomi landed at New York University. His French baccalaureate diploma counted toward his first year, and he shaved off a second by going to summer school. In 1985, at 19, he graduated with a degree in business administration. The day after graduation he started at Lazard Frères, the small but powerful investment bank. “They were training me,” he says, to return to Milan, take various jobs in the family business, and then eventually lead it. It didn’t work out that way. “I lost my job—my prospective job—in my first year of training,” he says.
In August 1985 the family conglomerate, BI-Invest, fell prey to Italy’s first hostile takeover. “We lost power and got money,” Bonomi says. The conglomerate shriveled into a family office as the companies that remained were sold over the following years. In 1990 he began the transformation of the business’s remains by founding Investindustrial. Over the past 23 years, Investindustrial has placed €2 billion of equity in 49 deals, yielding proceeds of €3 billion. The investments it’s exited have generated an internal rate of return of 34 percent a year, the company says.
Some aspects of his current turnarounds are taking place in-house. In 2012 he bought 37.5 percent of Aston Martin Holdings UK, maker of the sports cars Agent 007 drives in James Bond films. Walking through his Lugano office, Bonomi points out a scrum of men chatting at the top of a steel staircase. The employees include an engineer. Bonomi says they’re working on an Aston Martin SUV, part of his plan to expand the product line.
Along with the Agnellis of Fiat, who ventured beyond their borders and now control Chrysler, Bonomi “embodies the fourth phase in Italy’s financial history,” says Andrea Colli, economic history professor at Milan’s Bocconi University. “An Italian investor on the global stage.”
In that public role, Bonomi balances a salesman’s openness with a cagey side befitting a Swiss banker. Without hesitation, Bonomi volunteers that he lives in Switzerland with his German wife and three teenage children and that as a licensed jet pilot he’s traveled to Kentucky to fly gyrocopters and to Russia, where he piloted a Soviet-era fighter jet. Yet when asked what, if any, aircraft he owns, Bonomi’s face goes stony for the only time in a two-hour interview, and he declines to comment.
The same goes for discussing his personal finances. A back-of-the-envelope calculation indicates that he and his family are billionaires, though he won’t confirm this. Bonomi invests through two main vehicles: Investindustrial, which includes outside investors, and Strategic Holdings, which is mostly family money. The two arms are part of an umbrella company, BI-Invest, that has assets under management of €4.4 billion. Subtract out the roughly €3.1 billion of Investindustrial funds, and you arrive at a fortune of at least €1 billion. Bonomi allows only that “it’s not exactly one minus the other.”
With his own money on the line for Club Med, Bonomi’s other ventures may provide the best guide to how he’ll fare. In 2012 he made almost three times his investment in Ducati, selling it to Volkswagen’s Audi for €860 million. In the deals, he’s taken on minimal debt. “They’ve never pushed the envelope on leverage, and that helped them greatly during the crisis,” says Mounir Guen, CEO of MVision Private Equity Advisers in London, which helps firms, including Investindustrial, raise money. “Their approach stems from their old industrial heritage.”
Bonomi’s stumbled in pushing to get his way. In 2011 he tried to reorganize Banca Popolare di Milano, a bailed-out lender rooted in Italy’s wealthy Lombardy region. Buying a big stake didn’t give him enough power, because shareholders were entitled to one vote regardless of how much stock they owned. Bonomi resigned as chairman last year and sold out in January.
To win Club Med, he needs to convince shareholders, especially in France, that he can strike a balance between what he calls his Anglo-Saxon approach to management and his desire to pin growth on the quintessentially French character of Club Med’s brand. In a crucial next step, the board will decide by the end of July whether to bless the interloper’s bid (and could announce its recommendation sooner).
Giscard d’Estaing continues to campaign against him. “I spent these past few weeks trying to see if it would be possible to include Bonomi in the project that we’ve been developing,” he said in his e-mail. He didn’t see it, which underscores the irony of Club Med’s crossroads. On one hand, its French leadership sees growth abroad while adding a tepid sop to “maintain an assertive stance in France,” as Giscard d’Estaing puts it. On the other hand, it’s the American-born citizen of the world who has zeroed in on the company’s continental roots as an unexploited opportunity.
“Europe needs to be shaken up,” Bonomi says. “The other guys aren’t waiting for us.”