There remain a few examples of private companies limited by shares in Europe. Many regard them as an old fashioned form of capitalism. Lagardère Group is one of those last companies. In spite of its early success, the Group’s recent history seems to confirm the limit of such a type of organisation.
Lagardère Group is a major symbol in the industry of France and Europe. His first CEO,Jean-Luc Lagardère was one of the founding members of EADS and his success at the head of his Group made him one of the most respected entrepreneurs in his country. In the latter years however, Lagardère Group has changed its strategy and goal. Originally an industrial champion, it has been slowly positioned as a media corporation according to Arnaud Lagardère, Jean-Luc’s heir at the top of the Group. The new leadership has been questioned much by investors. Arnaud Lagardère is a controversial manager. Yet more than leadership, the real issue Lagardère’s investors face today seems to lie in the status of the Group which protect the top management in a detrimental way for business performance, according to French journalists Sandrine Bajos and Sandrine Cassini.
An industrial champion
The history of Lagardère Group is closely connected to Jean-Luc Lagardère. He was the founder of the Group in 1981. Before that, Jean-Luc Lagardère was Director of industrial mechanics specialist Matra. He was also head of Hachette editing company. In the 1980’s, the early Lagardère Group took shares in both of these companies’ capital. The Group therefore originated from both industrial and media business.
Jean-Luc Lagardère used his savoir-faire and knowledge of the companies he had ruled to build a group with diversified activities. His masterpiece however remains industrial and is symbolized by the foundation of EADS. The latter company stems from the merging of Matra, German company DaimlerChrysler Aerospace and Spanish company Construcciones Aeronauticas. EADS is now the main European defence corporation and a leading global contractor in the fields of defence, military, and aircraft manufacturing.
In 2012, Lagardère Group still stood among the most prominent French firms. In 2011, the Group generated €7, 657 billion. It employed more than 26 000 people within his own offices or his subsidiary companies. Lagardère Group is now composed of four main subsidiaries. Lagardère Publishing is for paper-based editing activities, Lagardère Active for internet based editing, Lagardère Service for travel retail and distribution purpose, and Lagardère Unlimited for sport-related activities.
Of all of these, Lagardère Unlimited has got the privilege of the new boss’ attention. Arnaud Lagardère, son of Jean-Luc, was personally involved in the development of the Group’s sport-related activities. His strategy has however not proven to be efficient yet. Since Arnaud Lagardère has been appointed at the head of the Group, the revenue has stagnated at about €8 billion. In 2011 it has generated a €700 million deficit and even had to recognize more than €500 million provision especially for Lagardère Unlimited which is supposed to be the new driving force of the Group.
Continuing his father’s achievement in spite of some difficulties, Arnaud Lagardère is now owner of an empire. Being the righteous heir of the throne, his future at the top of the Group might seem certain. And yet Arnaud Lagardère is a controversial leader whose ability is questioned by his own investors.
Keep it in the family
There are multiple concerns about Arnaud Lagardère.
The first of them is probably about his personal debts that were estimated in 2011 to be about €400 million. Such information would not be a problem for investors if Arnaud Lagardère had not been suspected by French journalist Jamal Henni to sell €100 million of put options in 2009 with the purpose of paying bankers back. Investors were worried that Lagardère’s personal finance situation might endanger the Group.
They are also doubtful about its new development strategy: Arnaud Lagardère wants to turn his Group into a leader among sport media. In 2010, he bought American athletes management society Best. Before that, he also bought the sports right marketing agency Sportfive for €865 million. Aside from these major investments, Arnaud Lagardère also decided to personally manage Lagardère Unlimited. But the results have not met the expectation and enthusiasm of the top management. In June 2011, Olivier Guiguet and Stéphane Schindler, the two top managers of that branch, were fired by Arnaud Lagardère because of “some disagreement over strategy”. In November 2012, Guiget and Schindler, now working for American competitor CAA, badly tackled Lagardère Unlimited through the acquisition of the broadcasting, sponsoring and licensing rights of the Euro 2016 as well as the European qualification rounds for 2018 World Cup.
As a consequence of this questionable management, Lagardère Group stock price has been constantly falling since 2007. Its closing price for that year was around €51 when it is hardly overtaking €26 today. Besides, Arnaud Lagardère’s mild success at the head of his Group was harshly punished by investors in 2010. Back then, raider Guy Wyser-Pratte convinced several shareholders to demand that Lagardère Group stop to be a private company limited by shares. Such a status is highly protective of Arnaud Lagardère as the head of the business. The attack failed and yet Guy Wyser-Pratte confirmed the doubts about the skill of the top management and argued that Arnaud Lagardère had to “surround himself with real managers”.
Lagardère Group is one of the very last private companies limited by shares in Europe. Not all of those companies are in the same situation as Lagardère’s. However, Guy Wyser-Pratte sounds rather convincing when he states that such a status is an obstacle for Largardère Group’s performance. The Group spent more than €1 billion in developing Lagardère Unlimited which is now worth less than half of that amount. Such a failure at increasing the value of an activity could have probably been avoided by further debating the pros and the cons of the decision. But just like the prince in his castle, the CEO of a private company limited by shares is almighty and free to choose and dismiss his managers on his own.
Ruling over an industrial empire, Arnaud Lagardère took the reins off his father Jean-Luc at the top of Lagardère Group. Since 2003, he has redirected the development of this industrial conglomerate in order to reshape it as a media giant. In spite of his determination, Arnaud Lagardère’s strategy has been constantly questioned since his appointment as a general and managing partner of the Group. His investors fear his personal debt might endanger his Group. His controversial strategy in the field of media and sport made them dread further development of the business might not be as good as it used to be. As a private company limited by shares, Lagardère Group undoubtedly appears as a part of yesteryear’s capitalism. Perhaps the need for efficiency and performance will sooner or later lead to a reshaping of the Group. And Arnaud Lagardère might very well lose his throne at the head of the family business.
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