ODET.PA - Financière de l'Odet SE

[John Hjorth]

Topic split from the BOL.PA - Bolloré SE topic.

 

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E-mail from me today to Bolloré Investor Relations Director Xavier Le Roy at x[dot]leroy[at]bollore[dot]net :

 

Dear Xavier Le Roy,

 

I’m a  Danish Bolloré shareholder. I’m interested in Financière de l’Odet too.  I’ve done my very best to find the Registration Document 2018 for ODET on the ODET website, but unfortunately so far to no avail. It appears to me not to be available. If this is intentional, please provide an explanation for it being so. If it is actually disclosed, I would really appreciate to get guidance from you about where to get it.

 

Thank you in advance for taking the time to get back to me.

[Spekulatius]

Topic split from the BOL.PA - Bolloré SE topic.

 

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E-mail from me today to Bolloré Investor Relations Director Xavier Le Roy at x[dot]leroy[at]bollore[dot]net :

 

Dear Xavier Le Roy,

 

I’m a  Danish Bolloré shareholder. I’m interested in Financière de l’Odet too.  I’ve done my very best to find the Registration Document 2018 for ODET on the ODET website, but unfortunately so far to no avail. It appears to me not to be available. If this is intentional, please provide an explanation for it being so. If it is actually disclosed, I would really appreciate to get guidance from you about where to get it.

 

Thank you in advance for taking the time to get back to me.

 

What’s you plan with the registration document? Interesting stock, I bought a few shares recently.

[John Hjorth]

What’s you plan with the registration document? Interesting stock, I bought a few shares recently.

 

Thank you for asking, Spekulatius,

 

Yeah, the topic has been somehow fluttering in the wind here since I started it. Here - at least for starters - is the reply to me from Xavier Le Roy received by me the day after I contacted him :

 

Dear John,

 

Thank you for your interest in Financière de l’Odet. Attached Financière de l’Odet’s 2018 registration document in English.

 

Kind regards,

 

Xavier Le Roy

 

Attached to Mr. Le Roy's e-mail was the annual report for ODET.PA, while for BOL.PA the similar document is called the registration document. So I just got some uncertainty about disclosed documents eliminated by this communication.

 

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"What is it?" :

 

I'm attracted to [suffering from attraction to?] owner-operators who are obsessed with the well-being and the future of their companies - in several cases [like here], more obsessed with the well-being and the future of their company than for the same situation and prospects for their kids. Then you put on top of that a paranoia for the kids selling controlling shares in the company when the incumbent [p/m]atriark isen't around any longer. Owner-operators practising dynastic capitalism by the use of [more or less, here : more] complicated legal structures.

 

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Status right now is that I've no real firm opinion on it yet, after a mental melt-down/information overload after working on it intensely for a couple of weeks. I'm slowly recovering, and I'm really stubborn as hell, when it comes to that. [same thing happened to/for me a few years ago with BAM].

 

In the process I also got diverted [dearly] by finding out that a similar structure exists around & above LVMH [not directly visible in the financials for LVMH, only in the documents for Dior]. So, now I'm in the process of studying two bloated structures instead of one.

 

I have a few conclusions so far :

 

1. BOL.PA still seems cheap to me, ref. the approach used in the Muddy Waters report. [i need to walk through/reiterate the calculation process for myself with updated numbers though],

2. ODET.PA is - so to say - "double cheap" - compared to BOL.PA - exactly the same way as EXOR is "double cheap" compared to FCAU, as very well documented by Gísli [CoBF member Sportgamma] in the EXOR topic. [For ODET.PA, a discount compared to BOL.PA of 30⁺ percent], &

3. [Off topic] I'm pretty sure Bernard Arnault is waaay misplaced on the Forbes list of the Super-rich Persons of the World as of now.

 

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As always with this kind of stuff, you have to have a positive opinion on ["like"] the majority of the parts to like the sum of the parts, because you have to take the whole package as it is [as defined/composed by the owner-operator].

 

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Next I'll shed some light on bullet #2 above. That's the easy one, after you've found out where to look in the many pages per year from both companies [ODET.PA & BOL.PA].

 

Edit:

 

I forgot [!] : Thank you to wachtwoord for keeping me off the street corners & out of the local bars! [ : - ) ]

[Spekulatius]

John, I believe you are correct about Bollore being cheap and ÖDET having a double discount. I read the 200 pages annual report and it is a masterpiece in obfuscation. I don’t have a doubt that everything is correct as stated, but the way the business is structured in cross holding and nested dolls, the consolidated balance sheet and income statement is almost meaningless. What we do know is that the logistic business is doing well and the UMG music business within Vivendi is going gang busters and so it seems a lot of value is stored there with shares where they are.

 

It was the music business (which I looked at thought SPOT’s lens) that brought me to this, then I put in a GTC order for some ODET shares, which executed without me noticing right away.

[Packer16]

I have seen these types of situations before (compound mispricings).  It is tempting to buy the underlying business at a discount but you need to ask the question of why the discount is there & what will change the situation to reduce the discount.  IMO there is going to be a discount no matter how good the management is due to a minimum holding company costs.  You also have examine management.  From what I know, I think Bollere is going to be handed over to the son.  This IMO is a reason enough for the discount.  Many times good corporate governance is not hereditary.  The best course of action here would be an unwind of the corporate structure (similar to what is happening in Korea with holding companies) short of that what will reduce the discount & prevent future management from use this structure to enrich themselves at the cost of other minority shareholders.  There is also the possibility of the discount getting bigger if governance is worse under the new manager.

 

Packer

[Spekulatius]

ODET’s holding costs are fairly minimal - only a bit more than €1M. In addition, ODET has a bit of debt, I think it is €275M, but I am not quite sure. These are fairly small numbers compared to ODET‘s roughly €5B market cap. Since ODET does nothing else than holding a ~64% stake in BOL.PA and is  the control vehicle for the family, I am guessing it is the best way to align with the owner operator.

[Packer16]

I agree that it aligns shareholder interests but the IMO the key question is there a reason for the discount to close?  If not, by buying ODET.PA vs. BOL.PA you are also betting on the discount not getting bigger before your sell point.  Another consideration is how close is your holding period to the Bollere's?

 

Packer 

[wachtwoord]

I agree that it aligns shareholder interests but the IMO the key question is there a reason for the discount to close?  If not, by buying ODET.PA vs. BOL.PA you are also betting on the discount not getting bigger before your sell point.  Another consideration is how close is your holding period to the Bollere's?

 

Packer

 

There is a history of simplifying the structure (of course they take their due time). It seems reasonable Bollore is planning to simplify it further before handing it over to his son. As explained here https://valueinvestorsclub.com/idea/Financiandegrave%3Bre_de_lOdet/7018632841 that would most likely primarily benefit holders of ODET rather than BOL.

 

Meanwhile this is a compounder over decades which can be purchased at a large discount to IV (it does like to invest in riskier markets and take on political risk e.g Africa and the recent fight with Berlusconi). I believe you'll do good regardless of short term changes to the structure if your investment horizon is measured in the decades.

 

Looking forward to seeing contrary opinions :)

 

@John: Glad to help keeping boredom out the door. Don't forget about the wife though, ODET will be there next week/month/year ;)

[Packer16]

This does look interesting.  The catalysts appear to be present like in some other collapsing hold co situations in places like Korea.

 

Packer

[John Hjorth]

ODET’s holding costs are fairly minimal - only a bit more than €1M. In addition, ODET has a bit of debt, I think it is €275M, but I am not quite sure. These are fairly small numbers compared to ODET‘s roughly €5B market cap. Since ODET does nothing else than holding a ~64% stake in BOL.PA and is  the control vehicle for the family, I am guessing it is the best way to align with the owner operator.

 

This + exactly. This is valuation of ODET cut to the bone / "on the rim", explained in 2½ lines. Also, the numbers mentioned by Spekulatius are correct. You get there by grabbing the financials for ODET the parent, in the ODET Annual Report. My original bullet # 2 hereby done.

 

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The ODET HoldCo debt and HoldCo costs are covered by future BOL dividends.

[Jurgis]

I'm not gonna spend time on this, so feel free to ignore.

 

Aren't there circular holdings between ODET and BOL, so that ODET holds BOL and then (some sub of) BOL holds ODET in turn? I seem to remember this. Are you guys accounting for this and how? It seemed that this made valuation not so trivial as some posts above imply. Maybe this was unwound at some point, not sure.

 

Disclosure: no position and no interest in position.

[wachtwoord]

@Jurgis, click the VIC link in my previous post and all your questions will be answered. In short: yes there's lots of cross-holding and this is positive for ODET.

[no_free_lunch]

Jurgis, the circular holdings are a positive and are part of the thesis.  Yes, they are complicated and yes, they can be understood.  It is just math.  I think of it like a Malone situation, complicated but it drives share mis-pricings and management can maneuver to share-holders benefit in the chaos.

 

I wanted to add, to Packers comments on the discount just sitting idle, that with some of their transactions they ARE slowly unwinding the share structure.

 

The big risk is always succession.  As I recall Vincent bought into an existing company but I think the track record is all him.  To me, it is like BRK without Buffet.

[Packer16]

I took a quick look at BOL.PA and it looks like the BV growth has stalled from over 15% growth to 2014 to almost 0% since 2014.  If this continues for the next 5 to 10 years, then discount (50%) on Bollere and the ODET.PA discount may be reasonable.  What is going to kick-start Bollere's growth? 

 

In looking at the VIC report, it looks like the base incremental return for holding ODET vs. BOL is about 15%.  A key assumption is when will the merger of ODET & BOL happen.  The VIC author estimated a 2-year time period with a 60% probability of event ever happening.  Given this the incremental return is estimated to be 4.3% per year.  As time period increases the incremental return per year declines.

 

Packer

 

 

[John Hjorth]

John, I believe you are correct about Bollore being cheap and ÖDET having a double discount. I read the 200 pages annual report and it is a masterpiece in obfuscation. I don’t have a doubt that everything is correct as stated, but the way the business is structured in cross holding and nested dolls, the consolidated balance sheet and income statement is almost meaningless. What we do know is that the logistic business is doing well and the UMG music business within Vivendi is going gang busters and so it seems a lot of value is stored there with shares where they are.

 

It was the music business (which I looked at thought SPOT’s lens) that brought me to this, then I put in a GTC order for some ODET shares, which executed without me noticing right away.

 

Yes, Spekulatius,

 

To me, it's true. Here I'm trying to focus on your sound skepticism expressed above. To me, skepticism is certainly warranted here. Please try to think about what's teasing your eyes & mind here. You call it obfuscation above. Personally I think this obfuscation can be decomposed into two separate properties in this structure:

 

1. Opacity

2. Complexity

 

Opacity and Complexity are to me distinct two separate, different places in the whole structure.

 

Opacity :

 

The opacity in the structure is - at least to me - particularly in the "superstructure" above ODET, pretty much leaving us no real financial insights to the legal entities [here mentioned bottom-up] [Link] :

 

Sofibol

Financière V

Omnium Bolloré

Bolloré Participations

 

However, there exist a "window" [a tiny one, and only an overall one], where one can get just some kind of perception what this "superstructure" looks like financially. You don't find it in ODET's financials - you find it in the BOL financials [cumbersome & time consuming exercise to dig it up] : BOL 2018 Registration Document [Link], p. 240 - 244, Note 15:IFRS Consolidated Financial Statements for Omnium Bolloré Group.

 

In all honesty, & to me, it's frigging crazy to look at. Ominum Bolloré group equity at EUR 489.1 M at YE2018, total assets of EUR 51,240.9 M, minority interests at EUR 23,387.7 M.

 

The structure goes by the name "Breton Pulley" - for a good reason! [ : - ) ] -And we actually don't have to stop and settle at this particular stage - we can actually pull it further apart for further analysis, by diffing/extracting ODET income statement and balance sheet from the corresponding Omnium Bolloré income statement and balance sheet, to get the net assets [and debt] in the superstructure and the income and cost components of the superstructure. I haven't done that yet though, but I will.

 

Complexity :

 

To me the complexity is distinct to the part of the whole structure below BOL & above the operating groups of companies. It looks like a bunch of cooked spaghetti to me. To me there is only partly opacity at this particular place in the structure, because almost all of these companies are actually individually listed on Euronext Paris and have their own separate websites with financial disclosures [in French! - to me, yet another challenge] :

 

Plantations Des Terres Rouge [Private, not listed, formerly listed] [Inactive website],

Companie du Cambodge [Listed] [Website],

Financière Moncey [Listed] [Website],

Societé Industrielle et Financière de l'Artois [Listed] [Website],

Société des Chemins de Fer et Tramways du Var et du Gard [Listed][Website],

Compagnie des Tramways de Rouen [Listed] [Website], &

La Forestière Equatoriale [Listed] [Website].

 

These companies are somehow inherited/legacy items from the Bank Rivaud acquisition many years ago, where the bank was broken up and sold in parts to get only the good bites - the logistics business. Some of these companies are partly operational companies, too.

 

These companies are partly receivers of dividends from the three groups of operational companies. So when dividends are paid out to these intermediaries there must be a weird flow of cash in this whole subsystem of companies, where the cash eventually ends up in BOL, at least partly. It's my perception that a part of the cash inflow in this group of companies is used - slowly - to suck up the tiny rest of free float in each of these listed companies. [Mentioned earlier here in this topic by wachtwoord. You find the free float percentage in the lower right corner in each "company box" in the detailed organizational chart.]

 

So gradually over time, this quite heavy level of complexity is likely to loosen up, by the listed companies being taken private and absorbed by BOL. This is a long term catalyst for rerating of BOL. And when it rains on BOL, it'll drip on ODET.

 

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So, obfuscation, yes, which I think mentally can be decomposed in opacity and complexity. And I think the level of complexity will eventually loosen up. Also, I think the level of opacity will not go away. The family capital present in the whole structure is simply not sufficient to make that change.

[no_free_lunch]

Great post John.

 

I also will add that Vivendi is consolidated into Bollore's balance sheet.  Since that time Vivendi's shares are up substantially.  However since their financials are consolidated, I don't think you can see the increase of Vivendi share price in Bollore's equity.  You only see changes to Vivendi's equity which is not necessarily the right way to value that company.  In short, I think equity and equity gains are understated.

 

No position but I am watching.

[John Hjorth]

Silence for almost a week now in this topic ... [ : - ) ],

 

I've been pretty busy with real life stuff for the last week or so, so not much time to digging or thinking about this.

 

However, I've managed to dig up this, from the BOL 2018 registration document, p. 135:

 

ALEXANDRE PICCIOTTO

Business address

Orfim

30, avenue Marceau

75008 Paris, France

Expertise and management experience

Graduate of the École supérieure de gestion (1990).

From 1990 to 2008, business development manager at Orfim, a development capital company belonging to his father, Sébastien Picciotto, a major shareholder of the Bolloré Group since 1983.

Over this period, he developed projects primarily in real estate and broadcasting. He is also responsible for Aygaz, a historic shareholding of the Picciotto

family, and a leader in the distribution of LPG cylinders and fuel in Turkey.

Chief Executive Officer of Orfim since 2008.

Number of company shares held: 157,758.

[no_free_lunch]

On the leadership transition, there is commentary from Vincent Bollore in the latest annual report.  Bollore group is going to be 200 years old!

 

Bolloré was founded in Brittany, in 1822, by

my two great-great-great-great-grandfathers,

François Le Marié and René Bolloré. They

were followed successively by their children,

Nicolas Le Marié, my great-great-great-uncle,

and Jean-Claude Guillaume Bolloré, my

great-great-great-grandfather, their children

and their children’s children, right down to

my uncles and my father.

Today, it gives me great pride to see the

seventh generation take over the reins, with

the help of teams of cohesive and experienced

leaders. Having seen him at work in the Group

for twelve years, I fi rmly believe that Cyrille

Bolloré is the right choice for this new chapter

in the Group’s story. As planned, I will remain

Chairman and Chief Executive Officer of

Financière de l’Odet – which controls 65% of

Bolloré’s share capital – until February 17, 2022,

date of our bicentennial, to ensure that the

transition is as smooth as possible.

[John Hjorth]

On the leadership transition, there is commentary from Vincent Bollore in the latest annual report.  Bollore group is going to be 200 years old soon!

 

Yeah, -old sucker! [ : - ) ] - But it's "nothing", compared to my "oldest investment" : I own a winy-tiny bit of Le Clos des Lambrays, which roots back to 1365!

 

[John Hjorth]

I'm sorry for double posting here, -perhaps I should have avoided posting my last post here in this topic [i may have been carried away - non-investment related].

 

Link :

 

Translated to English using Google Translate :

 

1356/5000

[biography of Sébastien Picciotto]

Sébastien Picciotto is the owner of the financial Orfim. Born in 1933 in Syria under a French mandate, this mining engineer converted to development capital late in life. In 1981, Michel-Yves and Vincent Bolloré just took over the family-run stationery business that their father had sold six years earlier to Baron Edmond de Rothschild. To restart the business, the two brothers go looking for investors. Vincent Bolloré, who knows Sébastien Picciotto, convinced him to invest 10 million francs through his investment fund, Financière de l'Odet. 50% shareholder at the time of his entry into the capital, Sébastien Picciotto made his fortune as the Bolloré group became an empire. The businessman is far from being a shadow investor. He is one of the architects of the Breton group's success, having advised Vincent Bolloré for many years on management issues. At the same time, the former engineer developed a portfolio of various holdings including Rubis (sold in April 2019) and Radiall. These successful investments have made the fortune of this octogenarian who has handed over the management of his holding company to his son, Alexandre. In the tradition of his father, the latter sits on the board of directors of the Bolloré group.

 

Q [& challenge here] : Where is the Picciotto capital in the whole Bolloré system here as of now?

[Spekulatius]

I agree that it aligns shareholder interests but the IMO the key question is there a reason for the discount to close?  If not, by buying ODET.PA vs. BOL.PA you are also betting on the discount not getting bigger before your sell point.  Another consideration is how close is your holding period to the Bollere's?

 

Packer

 

There is a history of simplifying the structure (of course they take their due time). It seems reasonable Bollore is planning to simplify it further before handing it over to his son. As explained here https://valueinvestorsclub.com/idea/Financiandegrave%3Bre_de_lOdet/7018632841 that would most likely primarily benefit holders of ODET rather than BOL.

 

Meanwhile this is a compounder over decades which can be purchased at a large discount to IV (it does like to invest in riskier markets and take on political risk e.g Africa and the recent fight with Berlusconi). I believe you'll do good regardless of short term changes to the structure if your investment horizon is measured in the decades.

 

Looking forward to seeing contrary opinions :)

 

@John: Glad to help keeping boredom out the door. Don't forget about the wife though, ODET will be there next week/month/year ;)

 

Besides ODET (the holding above Bollore), there are other ways to buy in a discounted way into Bollore Spagetti structure though the low liquidity backdoor:

 

Plantation des Rouges (not publicity traded and controlled by other holding companies like ARTO.PA) it controls CBDG.PA (62.8%)

Compagnie Cambodge - CBDG.PA

Financier Moncey - MONC.PA (quite interesting)

La Societe Industrielle et Financiere de l'Artois  - ARTO.PA

 

These belong to a group of 4 Holding companies underneath Bollore, but only the three above are publicity traded. The float of these companies is quite small (<5% for the latter two) so they could easily be taken out. ARTO.PA has ~570M € in cash. Simply a mind boggling construct.

 

 

[ValuePadawan]

I would just like to thank all of the previous posters for helping to clarify and help me realize the order in the chaos without you folks I as a beginner and relative whippersnapper would never have had the confidence to try unraveling this Gordian knot.

 

These calculations are as of today using FY 2018 numbers from the 2018 annual reports to show the ODET discount.

ODET price per share                        - €500

Bolloré price per share                      - €2.50

Odet ownership of Bolloré (Shares)    - 1,869,065,054

Odet equity stake in Bolloré                - € 4,672,662,635

Odet net debt                                    - € 275,188,000

PRE tax value Odet                            -  € 4,397,474,635

Odet shares outstanding                    - 4,244,911

Odet equity stake in Bolloré per share -  € 1,035.94

Bolloré pass through share price within Odet -  € 1.21

 

50% discount to an already discounted company seems like a double win to me. Again thanks to all the vets in guiding the way for me, the CoBF forum was an invaluable starting point in my learning about this opportunity.

 

[dbm]

Just to highlight that over the past week or so, VB bought ~25k shares, through Bolloré Participations (where the controlling family has 100%).

 

That's quite relevant for the liquidity of the stock. More than 4% of the free float.

[mjm]

saw this article-  www.ibanet.org/Document/Default.aspx?DocumentUid=50A38E63-2CA7-4CA4-8BDC-8F87AFA5CAF7

 

does anyone know how Odet  would fare in a squeeze out for minority shareholders?  Know europe not as friendly as USA although I may not be right in that regard.

[SI]

Thanks for the document. Reading the document is consistent with what the company has said, a squeeze out would have to be done in concert, given their are multiple shareholders within the complex that own shares of Odet and the totality of their holdings have now comfortably breached 90%.

 

I have always had a bit of doubt on whether they would consider a cash offer and whether they would do it at 90%. After reading this document it seems the path would be a take-out offer in shares or an option that included shares followed by a squeeze out for cash.

 

I have talked to them about the 90% / 95% threshold and they have been unsurprisingly vague. My guess here is that while IVA Worldwide sat on a 100,000 shares in the position of a forced seller, VB could be the most economical by buying those in cash. Now that those have mostly been repurchased by VB and with the UMG IPO mandated for next year given their tencent agreement this is the appropriate time to move forward.

 

Further, with the upped VIV dividends that have worked their way through the system, Odet now sits with net cash which wasn’t the case a few years ago when they had a few hundred million in debt. Basically since the failed BOL bond offering(even the December Vivendi bond rating downgrade by S&P) the consolidation would now bring vast simplification into the complex and net cash the latter deserving mention as any squeeze out would require at least some cash, likely the level of debt Odet had a few years ago. BUT in 2020, the cash was way more scarce given the economic contagion and Odet improved its cash position by ~100mn and firmly into balance sheet accretion when it means something to the bond market for VIV and BOL.