Reposted from Barron’s
By Jonathan Buck
Run by Vincent Bolloré, who’s sometimes compared to Warren Buffett, Bolloré is undervalued based on its holdings in Vivendi, Aegis, Havas, and its African-based operations.
An investment in Bolloré is a bet on France’s Warren Buffett—and his company is making a lot of things happen. The stock could soar at least 20% in the next 12 months as more of the company’s investments produce results.
Vincent Bolloré, chief executive of the family-controlled conglomerate, for years has been shaking up boardrooms to unlock value for shareholders. Earlier this month, Bolloré (ticker: BOL.France) revealed a capital gain of 450 million euros ($547 million) from its 26% stake in media outfit Aegis (AGS.UK), which agreed to be acquired by Japan’s Dentsu (4324.Japan). It is a handsome windfall, but Bolloré already has moved on to his next target—media and telecom giant Vivendi (VIV.France). (Arbiter Partners principal Paul Isaac weighed in on Bolloré and Vivendi in an interview published in last week’s Barron’s.)
Bolloré is about much more than shareholder activism. The 60-year old CEO generates most of the headlines for agitating for change at staid companies, but Bolloré is a well-run business whose activities span transport and logistics, fuel distribution, technology, and media. Its profitable transport and logistics operations, which account for more than 50% of revenue, are concentrated in Africa and encompass everything from ports to railways and trucking. That makes Bolloré a play on Africa’s enormous growth potential.
The business, which is almost 200 years old, is forecast to earn €10.91 a share in 2013, according to FactSet figures. That compares with an expected €8.92 in 2012. It earned €13.62 a share in 2011 as the company’s reported net income rose 5% to €376 million. Revenue was €8.49 billion. Changes in an accounting provision affected 2010 and 2011 results.
After a 19% gain so far this year, the stock closed Friday in Paris at €180 and looks expensive at a multiple of about 17 times forecast 2013 earnings. But the price/earnings ratio doesn’t fully reflect the value of the company’s financial holdings. The market value of its stakes in Vivendi, Aegis, media giant Havas (HAV.France), and steel-tubing maker Vallourec (VK.France) together are worth more than €2.5 billion, while Bollore’s market capitalization stands at just €4.65 billion.
“It’s just not being valued properly,” says David Marcus, chief executive of Evermore Global Advisors in Summit, N.J., whose sum-of-the-parts valuation for Bolloré is more than €320 a share, almost 80% above the current price. “People pull it up on their Bloomberg screens and look at the P/E and they will walk right past this one,” he adds.
Shareholders stand to reap another windfall if Vincent Bolloré can work his magic at Vivendi. Bolloré has agreed to sell its television channels to Vivendi unit Canal Plus for shares instead of cash. When the deal wins regulatory approval, most likely in a couple of months, Bolloré will own a roughly 5% stake in Vivendi, which has a market capitalization of more than €20 billion. Bollore’s timing seems excellent: Vivendi’s share price hit a nine-year low just a couple of months ago.
Importantly, Vincent Bolloré will get a seat on Vivendi’s board, where he will be a catalyst for change. His impending arrival already has stirred up a hornets’ nest. It’s no coincidence that Vivendi has begun to review its options and that its chief executive, who was committed to the conglomerate structure, last month quit over what the company said were differences over strategic development.
VIVENDI’S MOBILE-PHONE operator SFR is losing customers and revenue owing to tough competition. SFR accounts for more than one-third of Vivendi’s first-quarter revenue of €7.12 billion. According to reports, Vivendi already is exploring a sale of its 61% stake in video-game maker Activision Blizzard (ATVI), which is worth about $8.5 billion.
If Vivendi is broken up, it would be worth in the region of €20 a share, possibly more. That’s a premium of about 30% to its closing price Friday of €15.12. It might take 12 to 18 months, though.
Bolloré can make this happen. For a guide, look at how events unfolded at Aegis. Bolloré built his stake in 2005 and 2006. He agitated for change but was rebuffed in part because of his position as chairman at rival Havas, in which Bolloré owns more than a 30% stake. But he supported new management that was installed in 2008 and was rewarded with asset disposals and international expansion before this month’s acquisition.
“I think the guy is the most underrated value investor and aggressive corporate raider out there,” says Evermore’s Marcus, who owns shares in Bolloré and Vivendi.