Italian dealmaker arm-wrestles French establishment for control of Club Med
Andrea Bonomi, the scion of one of Italy’s great industrial families, wants control of a French icon in the highest-profile deal of his career.
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: 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 regulator 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 effort already in the works and backed by the Club Med board.
“The put-up-or-shut-up gives you three days,” he 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, sitting in his office in Lugano, Switzerland, an Italian-speaking enclave an hour’s drive from Milan.
Bonomi said he started buying Club Med shares with the sole goal of turning around a unique brand of 20th-century leisure that combined a vision of carefree, 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 euros ($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 consultants Oxford Analytica in Oxford, England.
What the ultimatum made clear to Bonomi was that even though he’d acquired more of the 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 euros 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. 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, 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 heading 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 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.
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 euros of additional investment and add 5,000 beds, for a total 20,000. As a result of the expense, he’s warned that shareholders who don’t surrender shares in his offering shouldn’t expect dividends for 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, 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 email 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, 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 at communal tables. The introduction of “bar beads” instead of cash for premium items (e.g., alcoholic beverages) removed signs of status from the outside world.
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, the film 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.
The all-inclusive concept became so popular that by the 1990s several competitors had copied the idea.
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 euros 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 lagging recovery 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.
Turning around Club Med in Europe would certainly be cheaper than breaking new ground abroad, says Ron Adner, a professor of strategy and entrepreneurship 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.”
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.”
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.
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, 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 euros of equity in 49 deals, yielding proceeds of 3 billion euros. The investments 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.
With Bonomi’s own money on the line for Club Med, his 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 euros. In the deals, he’s taken on minimal debt.
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 in late July endorsed Bonomi’s bid as in shareholders’ interest but noted the risk of changing strategic partners in China, Reuters reported.
“Europe needs to be shaken up,” Bonomi says. “The other guys aren’t waiting for us.”