Shareholder indifference risks sinking Eurotunnel

You cannot blame the legions of Eurotunnel small shareholders feeling quite apathetic over the Channel tunnel operator’s share exchange offer. Those who have held them since they were first listed in 1987 at €5.30 saw them peak at nearly €20 in 1989 before they began their relentless fall to their current pathetic price of around 38 cents.

The company is now desperately trying to seduce these small shareholders to secure the necessary 60 per cent acceptance threshold for its share swap offer that is crucial for its restructuring strategy and survival. The offer was originally due to close Tuesday, but the French financial regulator agreed to extend the deadline by a week to May 21.

A French bank is messaging small shareholders on their mobile telephones to urge them to exchange their shares. The head of France’s small shareholders association is also asking them to subscribe even though investors will be heavily diluted. Under the plan, creditors will hold the bulk of the new shares in exchange for halving the company’s huge debt. If they do not subscribe, they will simply lose everything, but then they have so little to lose that many seem tempted to ignore all the last-minute appeals in protest.

The French government has also rallied to Eurotunnel’s support to avoid the risk of liquidation. Although the Channel tunnel treaty forbids any state subsidies, the French treasury last week agreed to allow the tunnel operator to deduct some €890m ($1.2bn) of past losses against future profits.

The European Investment Bank, one of the group’s largest shareholders, has announced it will swap its 2.3 per cent stake, but the problem for Eurotunnel is that as many as 16 per cent of its investors own less than 200 shares each. The company acknowledges that it is going to be virtually impossible to persuade these very small shareholders, who are mainly French. The timing makes the task all the more difficult, given the distractions of the French elections and the string of public holidays in May.

Ever since he came into the company, Jacques Gounon has lived on a knife-edge. But for the Eurotunnel chief executive this has been nothing compared to the current countdown that will decide the Channel operator’s ultimate fate.

Total’s bitter pill

Even before he gets his feet under his new desk at the Elysée palace, the industrial dossiers are piling up in Nicolas Sarkozy’s in-tray. Apart from EADS and Airbus, Gaz de France, Areva and the hard-pressed domestic car sector, it now seems that the epitome of French industrial interventionism – Sanofi-Aventis – could be threatened.

Total’s victory present to the new French president just days after his election was to announce its intention to sell as quickly as possible its 13.1 per cent stake in the French pharmaceutical champion. The oil group’s new chief executive, Christophe de Margerie, told investors at last Friday’s annual meeting that he wanted to concentrate assets to strengthen his oil and gas investments as well as move into the nuclear business and other new energy sectors.

Sanofi-Aventis’s other core shareholder, L’Oréal, has no immediate plans to sell its 10.5 per cent stake in the world’s fourth largest drug company. But the cosmetics group has also hinted it would consider a disposal of this stake should it decide to make a big acquisition.

Should these two historic shareholders indeed sell out, it risks making Sanofi-Aventis vulnerable to takeover. The risk could be all the higher, given that the company is going through a difficult patch that is weighing on its share price. Considerable uncertainty surrounds the company because of the patent litigation over its blockbuster Plavix drug in the US. The French group also held merger talks with Bristol-Myers Squibb at the beginning of this year, but these have gone nowhere.

What makes the situation doubly ironic is that up to now Sanofi-Aventis has been one of the best-protected members of the CAC-40 blue-chip club of companies thanks to its two large shareholders. Were these two to sell, the French drug company would join the majority of other CAC-40 companies whose widely held capital has turned into potential targets for private equity and foreign rivals.

Second, it was Nicolas Sarkozy who helped engineer the original Sanofi-Aventis merger when he was finance minister.

Apart from creating a French world-class drug company, the merger of Aventis and Sanofi had the added advantage for the Paris government of restoring a strong French core shareholding base for Aventis with Total and L’Oréal. Yet if these two core shareholders now decide to go away, all Mr Sarkozy’s original efforts to protect the country’s drug champion will have been in vain. For it would not take very long for private equity players or big Swiss, Anglo-Saxon or indeed Indian drug giants, to start circling.

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