September 24, 2013 9:15 pm

Club Med bidders are dealt court blow

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Tourists relax by the sea at Club Med in Grecolimano, Greece, on Friday, June 13, 2008. Club Mediterranee SA, Europe's largest resort operator, reported a first-half loss after spending more money to improve its properties and paying most of its annual rental costs at the start of the year.©Bloomberg

French and Chinese investors behind a friendly takeover bid for Club Mediterranée suffered a setback on Tuesday after an appeals court considering opposition to the deal set a hearing for early next year.

The delay highlights the difficulties of taking companies private in Europe amid more stringent regulation and risks of litigation.

Paris-based Axa Private Equity and Fosun, China’s largest private conglomerate, are pushing to conclude a takeover bid, announced in May, that values the French holiday company at €557m.

At the time, the company’s management described the offer as “a stroke of good luck,” arguing that it would provide breathing space to move ahead with its goals of moving upmarket and expanding into emerging markets. Club Med, a pioneer of the all-inclusive family holiday, has been struggling to reinvent itself since the emergence of fierce competition in the late 1990s.

But a Paris appeals court has set February 27 as the date for hearing the complaints of two minority shareholder groups, putting the process on ice until at least mid-March, as courts take a couple of weeks to issue their judgments.

Club Med noted in a statement that the Autorité des Marchés Financiers, the French stock market regulator, “promised to defer the closing of the tender offer at least eight days after the court judgment”.

Problems began for Axa Private Equity and Fosun when two minority shareholder groups lodged formal complaints in July to the proposed takeover. CIAM, a merger arbitrage fund, and Adam, a French minority shareholders’ association, objected to the offer price of €17.50 a share. The initial offer of €17 a share represented a 23 per cent premium to the previous closing price.

The deal’s opponents also allege the proposed structure of the takeover raises conflicts of interest. Under the terms of the takeover, Axa and Fosun’s stake would increase to a combined 92 per cent from about 19.3 per cent, with the remaining 8 per cent held by Club Med’s management.

Julien Visconti, a lawyer representing CIAM, which held about 1 per cent of Club Med shares when the appeal was lodged, alleged that experts hired to determine the benefits of the proposed takeover were not independent. He also says there is lack of data on the benefits management stands to receive.

Supporters of the deal expressed frustration with the delay – although they said they remained confident the court would eventually rule in their favour.

One person close to the process said that a small group of shareholders was holding others hostage.

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