M&A

Holiday spending

Fosun steps up its bid for Club Med, making a higher offer

A woman walks past a Club Med travel agency in Paris

Fosun’s chairman Guo Guangchang has never hidden his admiration for Warren Buffett. Copying the Berkshire Hathaway model, Guo has invested in stable financial assets, helping Fosun expand into China’s largest privately-run conglomerate. But while local media often dub him China’s equivalent to the Sage of Omaha, Guo demurs, telling CNBC last year that he sees himself more as “Buffett’s apprentice”.

If so, Guo appears to have forgotten a golden rule from his master. Buffett rarely gets into bidding wars, preferring friendly acquisitions. Last Friday, Fosun made an eleventh-hour counterbid for Club Med in an escalating battle for the French firm that began more than a year ago. Fosun has offered €22 for each Club Med share, valuing the holiday group at €839 million ($1.1 billion). The last-minute offer tops the €21-per-share proposal tabled in July by Italian investor Andrea Bonomi. Fosun and its partners initially offered €17 a share.

French private equity firm Ardian, Club Med’s management and U-Tour, a Chinese online travel agent, were part of Fosun’s original bidding consortium. However, under the latest buyout plan, Fosun’s participation will rise significantly, taking on more of Ardian’s stake in buying Club Med. The Chinese firm is now the single largest shareholder in the resort operator with an 18% stake.

But why is Guo so obsessed with taking over a lossmaking hotel brand, especially as it means a major deviation from his Buffett-esque philosophy in the process?

One reason is that – despite the takeover battle – Club Med’s valuation remains relatively cheap (the holiday chain was worth €2.1 billion in 2007). The Hong Kong Economic Journal notes that Club Med now operates 66 resorts globally, which equates to €12 million per resort before debt. “A luxury apartment in Hong Kong is easily pricier than that,” the newspaper suggests. Furtther, the newspaper believes that hotels and ‘travel experience’ fall into one of the rare industry categories that aren’t likely to be replaced by the internet (versus shopping malls, for example, which are competing with e-commerce).

“Club Med fits perfectly into Fosun’s acquisition strategy of combining China’s growth momentum (Chinese tourists) with global resources (a renowned resort operator),” the newspaper concludes.

Buying Club Med can add extra value to Fosun’s domestic businesses too. A five-star hotel with a strong global brand is an attractive calling card when dealing with local officials in China (see WiC196). They see luxury hotel construction as a boost to city GDP, bringing economic benefits like tourist spending and providing jobs. With the lure of new Club Med hotels, Fosun may be calculating that it can drive hard bargains with city mayors, getting cheaper land and other subsidies as welcome gifts.

Club Med management has similar ideas. Its China head Olivier Horps told the Hong Kong Economic Times this week that it expects China to overtake the US next year as Club Med’s second biggest market (by room nights). It already runs three resorts in the country but plans to add three more by 2016.

At a gathering in Macau last week Chinese Vice Premier Wang Yang told tourism ministers from APEC that the central government sees tourism as a “sunrise industry”. Wang promised that China will continue to promote it as a key economic driver, which means improving visa policies and more direct flights to Chinese destinations.

Guo’s plans could, of course, be foiled if his rival Bonomi comes back with a better offer.

The Italian must do so within a month of Fosun’s revised bid, which suggests he has until early October to make his decision.


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