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09-11-2024 : The future governance of Havas

Vivendi's governance was already characterized by the oddity that the Chairman of the Supervisory Board, Yannick Bolloré, was also the Chief Operating Officer of one of Vivendi's main subsidiaries, Havas. Certainly nothing illegal, but the spirit of balanced governance between management and control powers was undermined, as the chairman of the supervisory board could hardly supervise and control himself. And who could imagine the Chairman of Vivendi's Management Board, irrespective of his qualities, taking a swipe at Havas' Chief Operating Officer for, say, under-performance or faulty implementation of the defined strategy, when he is also his supervisor in his capacity as Chairman of Vivendi's Supervisory Board??..? Especially when you consider that he is part of the family group that de facto controls Vivendi with just under 30% of the capital.

In Havas, whose parent company has become Dutch and will be listed on the Amsterdam stock exchange to enable the Bolloré group to benefit from quadruple voting rights (see my post of October 12), the oddity takes on a new, well-intended dimension, since we were starting from scratch. The governance of post-split Vivendi remains the same: Yannick Bolloré supervises and controls Arnaud de Puyfontaine, Chairman of Vivendi's Management Board. With Havas, the situation is reversed, and Arnaud de Puyfontaine becomes Chairman of the Havas Supervisory Board, in charge of supervising and controlling his shareholder Yannick Bolloré, who becomes Chairman of the Management Board ... . Children would call this holding on to each other's goatees.

Anyone who believes that governance has an impact on corporate performance and value will not be surprised to note the following: since Bolloré took control of Havas in 2012, without a takeover bid to disinterest minority shareholders thanks to a clever use of the French watchdog market authority's general regulations, the value of Havas has multiplied by just under 2 in 12 years, from €1,700m to around €3,000m. For its competitor Publicis, and over the same period, it's by a factor of 3.2 (from 7,600 M€ to 25,000 M€). Publicis has thus become the world leader in its sector by market capitalization. It's true that the founding family of Publicis never thought that genius was hereditary, nor did they cling to a percentage shareholding, accepting instead to be diluted by successful external growth operations, led by brilliant managers they had detected and promoted, Maurice Lévy and Arthur Sadoun.

02-11-2024 : Boeing: largest-ever capital increase in the United States

$16.1bn, not including, as is often the case in such cases, $5bn in convertible bonds, and a possible extension (greenshoe) of $3.2bn, i.e. a total of $24.3bn.

But there was peril in the air. If in 2018 Boeing made $101bn in sales, delivering 806 aircraft and generating $14bn in free cash flow; in the first 9 months of 2024, its sales fell to $51bn, with 291 aircraft delivered and negative free cash flow of $10bn. Since 2019, the start of its industrial woes, Boeing has lost $24bn, including $8bn in the first 9 months of this year.

Since the same date, Boeing has had negative book equity (sic), -$24bn at September 30, because, while it has a lot of net debt ($55bn or 9.3 times its expected 2025 EBITDA (EBITDA 2024 is negative)), it has few fixed assets ($29bn) after years of outsourcing, and very low working capital thanks to customer advances ($2bn). But this source of financing could shrink, as with 5,400 aircraft still to be delivered, orders taken today may not be delivered until the next decade. And since 2025 is also expected to be a loss-making year, debt could only continue to rise.

To increase the number of its shares by 18%, Boeing had to concede a discount of only 5% to the syndicate of underwriting banks, compared with Monday evening's price. This shows the depth of the American financial market, in stark contrast to the European markets. Remember our post a month ago on the capital increase of ID Logistics, a star in its segment, which had to concede a 10% discount on the closing price to place a miserable 6% of new shares. A double discount to place 3 times fewer shares relative to the size of the company...

As we explain in the foreword to Vernimmen 2025, entitled Make equity great again, this is due to the funded pension system in the USA, which has created pension funds that buy equities over the long term; and in France to our preference for liquid, inflation-protected low risk investments, which are largely tax-exempt and tax-advantaged. It's high time, in these times of budget shortages, that the tax advantages of life insurance were reserved for risky equity investments, and not bonds (euro contracts), which account for 74% of assets under management of those contracts. This is exactly what the Swedes have done since 1980, with a financial market 2.6 times deeper than those of other European countries, 16% of Swedish companies with more than 250 employees listed (3% in France), and a number of IPOs since 2013 (501) that exceeds the combined IPO volumes of Paris, Frankfurt, Amsterdam and Madrid.