Fosun takes China holiday with Club Med
A global buying spree by cash-rich Chinese investors has taken a turn onto the tourist map, with word that Fosun International (0656.HK) is taking part in a bid to purchase France's Club Med (Paris: CU), a pioneer in the upscale resort business. I particularly like this deal, as Fosun can actually provide something more than just cash to Club Med, as the European company gets set to embark on an aggressive expansion to bring its brand of exclusive resorts to China.
Under the proposed buy-out, Fosun is teaming up with AXA Private Equity to help finance a €540 million management-led buyout for Club Med's publicly listed shares. (English article) Fosun and AXA already each own about 10 per cent of Club Med. Under this deal, a new entity that is 46 per cent owned by Fosun, 46 per cent by AXA and 8 per cent owned by 400 Club Med managers would take over the resort operator.
The offer price of €17 euros per share represented a 23 per cent premium to Club Med's last closing price before the deal was announced. Not surprisingly, Club Med's shares rallied 22 per cent to near the offer price after the announcement, meaning investors like this proposal and expect it to succeed.
I particularly like this deal because it has quite a few elements that look positive for Fosun. Club Med shares once traded as high as €35 before the global financial crisis, but have remained mired in the €12-17 range since then as the global downturn put a damper on the tourism business, especially in Europe where Club Med is based. Still, Club Med is a particularly strong brand with decades of experience in the business, and there's no reason it can't revive its fortunes with some good strategic investments.
A big part of the company's change in direction lies in emerging markets like China, where Fosun has strong connections. Club Med was already making a major push into China before the announcement of this deal, with plans to have five of its signature resorts in the market by 2015. Three of those will open by the end of this year, and Club Med hopes to eventually build China into its second largest global market after France. The China push is part of Fosun's broader plans to expand into emerging markets, including other BRICS members like Russia and Brazil.
The China push looks smart to me, since Chinese consumers have shown a willingness to pay big money for travel, both domestically and internationally. Chinese are also fond of famous brands, meaning Club Med could enjoy an advantage if it can establish its name in China by drawing on its global reputation and long history in operating exclusive resorts. The Chinese should also like the one-price system of Club Med's resorts, which allows tourists to pay a single price that covers most of the basic amenities including meals and lodging, eliminating many of the hassles of travel.
Fosun's purchase is part of a broader global expansion by Chinese investment firms that are seeking bargains created by the global financial crisis. Fosun paid US$120 million in 2011 for 9.5 per cent of a Greek company, Folli Follie Group, and has said it's in the market for more acquisitions in Europe. Others also in the market include Hainan-based HNA Group, as well as Citic Group and China Investment Corp (CIC), China's sovereign wealth fund. Look for more investments like this one in the remainder of 2013 and into next year, as these cash-rich Chinese firms continue to look for bargains in the distressed European market.
Bottom line: Fosun's purchase of a major stake in Club Med looks like a smart move that should yield strong returns as Club Med moves into emerging markets.
To read more commentaries from Doug Young, visit youngchinabiz.com