Conforama

"he knows that in the midst of the Agache-Willot jumble, there are good deals, such as Peaudouce, Conforama, or La Belle Jardinière,"

"The first mistake: like a sausage, Agache-Willot is cut into slices. Through the IDI, the State takes over the textile activities, while Dior, Le Bon Marché, and Conforama remain under the authority of the Willots. In other words, this division socializes losses and privatizes profits, a common practice of the right, strongly denounced by François Mitterrand when he was in opposition. Morally questionable, this division is also technically inept since it prevents the textile recovery from being supported by the profits of luxury and distribution."

"Looking at it, the assets of the group appear considerable. Dior alone, according to an evaluation based on indications from the company, which will prove to be largely underestimated, would be worth around 1 billion francs. This is followed by Conforama (between 600 and 800 million), the Bon Marché-Belle Jardinière group (600 to 700 million), buildings (600 million) and Peaudouce (300 million). Not to mention the stocks valued at 1 billion. In total, nearly 5 billion francs, or nearly three times the amount of liabilities and twice as much as Arnault had estimated in his 1984 plan!"

"Arnault had chosen to diversify into distribution, a sector where he had a good base with furniture stores Conforama and Le Bon Marché."

"For Arnault, on the other hand, the crash is a new stroke of luck. The opportunity is unexpected. Especially since, for months, he has been amassing ammunition. In September, one month before the crash, he put 13% of Conforama's shares on the stock market, which earned him nearly 300 million francs. A little later, it was Arnault and Associates, the head company, that was introduced to the second market. And in November, Financière Agache obtained a long-term credit of more than 800 million francs from a banking consortium led by Crédit Lyonnais. What does Arnault do with this war chest? With the support of Lazard bank, he buys LVMH shares, both personally and through Financière Agache."

"Initially, Financière Agache transferred its 86.5% stake in Conforama to one of its unlisted subsidiaries, IPS, whose main asset until then was a 20% stake in La Belle Jardinière. Then, IPS was absorbed by Le Bon Marché, which thus became the parent company of Conforama and the majority shareholder (75%) of La Belle Jardinière. This created a group "combining both commercial dynamism and control of significant real estate assets," according to the statement by Financière Agache, a group that investors should not turn their noses up at. Arnault expects them to subscribe later to a 2.4 billion franc capital increase for Le Bon Marché, the proceeds of which will be reinvested in Christian Dior."

"Simple in theory, the operation is actually much more complicated in practice2. In order to maintain control over Le Bon Marché, it is imperative that Arnault strengthens his majority in the company beforehand. How? Le Bon Marché, which is absorbing Conforama, must compensate for this contribution with new shares given to the contributor, namely Financière Agache. The larger the contribution in relation to the absorbing company, the more shares the contributor receives, and therefore the higher their participation in the new company. Thus, the operation is based on the evaluations of Conforama and Le Bon Marché. The former is given a flattering value corresponding to a share price that multiplies profits by 17.5, whereas the norm in the distribution sector is around 13-14. The latter, on the other hand, is not as impressive. Its buildings, which constitute its main asset, are evaluated based on a pessimistic price per square meter of around 20,000 francs, which seems low for the Sèvres-Babylone neighborhood where they are located. According to the expert commissioned by Financière Agache, their total value would be 1.2 billion. However, a few weeks earlier, Bernard Arnault himself had been more optimistic about Le Bon Marché in an interview with Fortune magazine: "The 100,000 square meters of floor space in the 16th arrondissement of Paris are worth at least 2 billion francs." In any case, the chosen method of calculation now allows him to control Le Bon Marché not at 65.53%, but at 89.96%."

"Arnault will therefore use the third solution, that of cascading. This involves stacking control companies on top of each other and opening their capital to minority shareholders who wish to be associated with the presumed success. These can be anonymous small investors or clearly identified external partners. He had already practiced this in 1986 when he had to pay cash for the last Willot shares. To find the 400 million francs, he sold a portion of the capital of Arnault et Associés, the former Férinel, his holding company, to Crédit Lyonnais and Duménil-Leblé. The following year, he raised funds by listing 13% of Conforama on the stock market. He brought Guinness in at 40%, then 45%, within Jacques Rober, the shell that now holds the LVMH shares. Of course, the sales are always partial. Bernard Arnault's golden rule is to always retain, under any circumstances, 51% of the capital of his companies to ensure he maintains control."

"Thanks to Crédit Lyonnais' devotion, which lent the money and was now burdened with Christian Dior shares, Arnault found 3.3 billion francs from others. However, he needed to contribute 2 billion of his own to complete the capital increase while retaining 58% of Dior. Where would he find these funds? Robert Léon suggested selling one of his distribution companies, either Conforama or Le Bon Marché. However, such a possibility did not fit into Arnault's strategy, as he disliked selling assets. Furthermore, these two companies were listed on the stock exchange, providing the opportunity to raise capital."

"After which, unlike Bernard Tapie, François Pinault understands that if he wants to enter the big leagues, he will have to break with his past and buy himself a conduct. What took three generations in the 19th century is done in one life at the end of the 20th... He sidelines his former associates, moves away from the world of commercial courts, whitens himself by calling on Alain Mine for his advice, and Anne Méaux for his communication. On these new foundations, he will take over CFAO, SCOA, Conforama, Le Printemps, La Redoute, and FNAC. All exercises in high-flying, jumping from branch to branch between his different companies, to the great dismay of minority shareholders and relying on the generosity of Crédit Lyonnais..."

"Among the proposed files is Conforama. It represents a great opportunity to move away from clothing and textiles, and to expand into the distribution of goods for home equipment. This chain of stores, driven by a purchasing center, Conforama France, was founded in 1967. It aims to be the leading distributor of home comfort, including appliances."

"The Agache-Willot group indeed had, with its retail subsidiaries, Conforama and Le Bon Marché, its real estate companies: Belle Jardinière, its industrial real estate, its 4,500 homes, and its exceptional properties such as the Mivoisin estate, a considerable asset base generating significant income and free of mortgages. Indeed, 70% of the capital of the Conforama and Dior companies had been pledged to the banks since August 1980, but the direct competitors of the group, like DMC or the Prouvost group, are in an economic and financial situation that is hardly more brilliant without having such a considerable mass of assets."

"The distribution subsidiaries held by SFFAW, Au Bon Marché, La Belle Jardinière, and Conforama, which are profitable and not under judicial settlement, continue on their own path. The crown jewel, Christian Dior, a subsidiary of BSF, is already the object of all covetousness. There is talk of taking it public along with Conforama."

"The court will remind that the principles set by a ruling of the Court of Cassation of February 4, 1985 state: "The interest of the group is defined as a common interest distinct from the interest of the dominant company and inseparable from the particular interest of the member companies. If the collective interest conflicts with the singular interest of a company, it is the latter that must prevail when the group's strategy exposes it to a risk to which it should not normally be exposed." Consequently, it was necessary to verify if, within the Agache-Willot group, subsidiaries like Dior, Conforama, Au bon Marché, or la Belle Jardinière had not suffered impoverishment by BSF or SFFAW, without possibility of compensation. Thus, the court will convict Jean-Pierre, Antoine, Bernard, and Régis Willot of misuse of corporate assets and credit for the benefit of Korvettes and to the detriment of Conforama, Bon Marché, and Dior."

"On the floor below, Bernard Arnault houses Financière Agache et Férinel. Further down, a constellation of SMEs spread across four sectors of activity: luxury (Dior, Christian Lacroix, Céline), distribution (Bon Marché, Belle Jardinière, Conforama), industry (Peaudouce, Saint-Frères, Boussac) and finance (Facet, Crédit Financier Lillois) 7."

"At the beginning of 1985, Bernard Arnault took stock. Since his visit to the Willot brothers six months ago, he has come a long way. He got what he wanted: the fashion house Dior, the flagship, but also a distribution group (Conforama, Belle Jardinière, and Bon Marché) with interesting real estate assets. He also acquired packaging factories and Peaudouce baby diapers. The downside: a dilapidated textile group."

"For his first call to the market, the buyer of Boussac chose Conforama. He offers small shareholders 15% of the capital. The financial profitability of the chain of stores clearly ensures the success of a stock market introduction. The operation was launched in September 1987. An indisputable success. The second company to take the path to the Palais Brongniart will be Arnault & Associates. Shortly after Conforama, the family company will sell 10% of its capital at a high price: 490 francs per share."

"On Wednesday, October 26th, Bernard Arnault chose the general assembly of his flagship company (Financière Agache) to announce his plans: now that he holds a blocking minority in LVMH, he will restructure his distribution group (Bon Marché, Belle Jardinière, Conforama) inherited from Boussac around a clear organizational chart with the goal of raising capital. The plan: Bon Marché becomes the parent company of Conforama, of which it will own 86.5% of the capital, and strengthens its stake in Belle Jardinière to 75.7%. At the end of the operation (see table 2), the whole group will combine a large real estate capital (about 100,000 square meters for Bon Marché alone) with a significant distribution force. It will represent nearly 300 million francs in net profits in 1988 for a turnover of over 7 billion francs. This structure will allow Bernard Arnault to appeal to the market under good conditions. He plans to proceed with a capital increase of 2.4 billion francs, which will be reinvested in Christian Dior."

"The technique, although complex, is perfectly mastered. This is the fourth time he has used it: one year before, he introduced Conforama on the second market, then the holding company Arnault and Associates, of which the family kept only 60%. He has just placed 42% of Dior's capital with private investors to raise 3.3 billion francs, which allowed him to continue buying LVMH shares. The principle is simple: 1. He buys companies; 2. He improves them; 3. He can then raise capital to make new acquisitions."