Yet Another Value Podcast - Arbiter Partners' Ross Levin talks betting on French compounding legend, Vincent Bolloré

Episode Date: September 16, 2024

Ross Levin, Director of Research at Arbiter Partners, joins the podcast for the second time to discuss betting on French compounding legend, Vincent Bolloré: Bolloré SE and Compagnie de l'Odet. For more information about Arbiter Partners, please visit: ⁠https://arbiterpartners.net/ Chapters: [0:00] Introduction + Episode sponsor: Tegus [2:36] What are Bolloré SE and Compagnie de l'Odet and why are they interesting to Ross [12:18] Asset value / share count [16:46] Why (in Ross' opinion) is this an alpha opportunity and why now [23:03] Betting on compounding legend, Vincent Bolloré [27:40] Risk of getting "Icahn'd" [32:20] Share re-purchases / capital allocation [39:31] French regulatory risk [41:41] What's the path for l'Odet [45:42] Vivendi [50:38] Anything else that investors should be looking out for here? Follow on re: capital allocation scenarios [54:57] Ross' quick thoughts on CCIs and France overall Episode sponsor: Tegus If you’ve been reading my newsletters, you know how often I rely on Tegus for my research. It’s truly revolutionized how I get up to speed on new industries and companies. Tegus has the largest transcript library in the world, with over 75% of private market transcripts. Whether you’re curious about AI, biotech, or any niche market, Tegus has the insights you need. What sets Tegus apart is its all-in-one platform. It’s packed with expert call transcripts, management checks, panel calls, and in-depth financial data. No more jumping between different services or piecing together fragmented data. With Tegus, everything is right at your fingertips. The best part? The insights you get are from the very people shaping the industries you’re interested in. You’ll find perspectives from insiders and executives that you simply can’t get anywhere else. To see Tegus in action and understand why it’s my go-to resource, visit Tegus.com/value – that’s T-E-G-U-S dot com slash value. Trust me, once you try Tegus, you’ll never look back.

This episode is brought to you by Teegas, the future of investment research. If you follow my newsletters, you know that Teegas is one of the things I use most often. Almost every post I have has some clip from an expert call or some quote from a management transcript that I've got off BMSEC that, you know, it's because of Teegas that I've got access to all of that. It's revolutionized how I get up to speed on new industries and companies. I've been a happy subscriber of it for over three years now. And I tell you, I use probably every day I'm logging on to Tegas to look at an expert call transcript

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I'm your host, Andrew Walker. If you like this podcast, you mean a lot if you could rate, subscribe, review, wherever you're watching and listening to it. With me today, I'm happy to have on from Arbiter. Ross Levin, Ross, how's it going? It's going fantastic. How are you?

I'm doing good and excited to have you on for the second time. The first time made a mark because when I said you were coming on again, I got a lot of emails that were like, hey, the French CCIs from last year was one of the most interesting ideas I've ever heard. So people can go listen to that one. It's really interesting. We're going across the pond again here today. But before we get there, just a quick disclaimer to remind everyone,

nothing on this podcast is investing in advice. That's always true. But we're going to be talking about an international talk today. So extra risk, extra taxes, all that sort of stuff. Consult's financial advisor. None of this is financial advice. Ross, the company we wanted to talk about is Boyet and Odette. I think it's O'Day, actually.

It's Boloray and O'Day after the O'Day River. And I just need to add to your disclaimer that we, Not only should folks consult their own investment advisors, not only is this not financial advice, but we undertake, you know, no obligation to update any of the information shared today and that we may buy or sell these securities at any time. Well, perfect. Love the update. But I just think of them as BOL and Odette as the tickers.

They've been along in value circles, event circles for a long time. Obviously, you're not the only one. I know a lot of people who think they're particularly interesting now, but I'll toss it over to you. And maybe we start with a little bit of background, but I'll tell service to you, what are they and why are they so interesting? Sure. So as you noted, these are a holding company complex controlled by a fellow named Vincent Boleret. The largest elements of that holding company complex that have publicly traded shares are Boleray, SE, which is under the symbol B-O-L-F-P, and Company De Laude, which is under the symbol O'D-E-T-FP, BOLRae, which is under the symbol O'D-E-T-FP, Boleray, is by far the more liquid of the two, but over two-thirds of it is owned in turn by Company de laudé, which in turn is owned by a daisy chain of family-controlled holding companies,

the minority of each of which is actually indirectly owned by Boleret, such that there's an enormous cross-shareholding, which we'll get to a little later. But just by way of background, Vincent Boleret has been a very successful fellow and has delivered a lot of success for minority shareholders over the last 40 years or so. The Boleret family business goes back over 200 years. It was founded in 1822. But by the time Vincent Boleret took it over in the 1980s, it had sort of come to relatively little in financial terms, was an industrial business

centered around fine papers. And he, after a stint at Rothschild, took over the family business, which had a fair amount of debts and was in some disorder, for a sort of a nominal price of one franc. and over the ensuing decades has built it up into one of the most important conglomerates in France and has built up a tremendous track record of value creation. Over that 40 years, his sort of emphasis and maybe the U.S. analogs for him have evolved a little bit. you know the first order of business in the 80s was straightening out the the fine papers business and getting into some higher technology businesses as well as building up over the

course of the 80s and 90s a tobacco papers business in Africa which was ultimately sold he also became something of the the Carl icon of France is a part of a smile about yeah in the in the mid 90s he took over over a group of companies called the Revode companies, which were old sort of French colonial entities that had been controlled by the De Reeb family. He took those over on a fairly advantageous basis, partly liquidated them and used the proceeds

to buy more shares within the family holding company complex, and to launch a number of shareholder raids, if you will, on important, important businesses in Europe. He got involved in Bweig, Path, Rue Imperial, which was an affiliate of the Lazard group, Valorek, and Aegis over the course of the late 90s through the 2000s, generated over two and a half billion euros of profits out of those sort of corporate raids. He also spent the 90s and the 2010s building up fairly important logistics businesses initially inorganically in the 90s and then organically built up the largest pan-African ports and logistics business and built up an international logistics business which were actually sold over the course of the last few years and have delivered a tremendous net capital.

balance sheet where formerly there was some net debt at the holding company level. The other major involvements over the last decade or so, decade a half, have been in the media space, which really got kicked off in 2011. They built up a couple of free-to-air TV stations and sold them to Vivendi and sold them for stock. They took 22.4 million shares in Vivendi as consideration for those TV stations they built up. And that began a towhold in Vivendi, which has evolved into de facto control of Vivendi. They own now about 30% of Vivendi, which is a fairly important French conglomerate in its own right. Vivendi's crown jewel at that time was perhaps unrecognized.

it was the ownership of universal music group but if we take ourselves back in time to the early 2010s that was a period where the value of record companies was perhaps a little bit less well understood than it is now you'd spent the 2000s grinding the physical music business in the form of you know CDs down to dust the Napster revolution and maybe some of us remember Kazah I remember Kazah all the rampant pirating of music

and the sort of demise of the physical form factor had compressed the earnings power of the recorded music industry and so Boloray was able to sort of waltz into control or de facto control via Evendi of Universal Music Group at a time when its value was a little unclear

over the last decade and a half, the value of the recorded music industry has roughly trebled in terms of revenue as various forms of paid streaming, of which Spotify is probably the most prominent, have become fairly important and have worked out their modus Vivendi, Har Har, with the record labels. And so Universal Music, very big and important component of the value of this overall complex. and using his de facto control of Vivendi, he distributed out a fair portion of the shares that Vivendi had owned in Universal Music, so that now Boloray has a direct 18% stake in Universal Music and an indirect stake in the 10% of Universal Music, which Vivendi has retained. So if we're just trying to lay out the asset value, value of Boloray as it stands now, it's actually as simple as it's ever been. Because where formerly you had these big ports and logistics operations, which were private, and where it could be a little

hard to parse the financials of what was in Africa, what was in Europe, et cetera. You now have three components of value that are about as straightforward as can be. You've got an 18% shareholding in Universal Music Group that's worth 7.7 billion euros or so. You've got a 30% stake in Vivendi that's worth 3.3 billion euros or so at market. But with there being a general understanding that Vivendi is subject itself to a 40% or so, some of the parts discount, which would take the value of that stake up to 5 billion euros or so. And there's some reason to believe that value may be unlocked there for reasons we can get into later. And the third major component of value is the 6 billion euros of net cash, which now sits

on the Boleret balance sheet following the sales of those ports and logistics businesses over the last couple years. The final sort of piece is a billion, billion and a half of odds and ends, including an important fuel distributor in France and a battery business, the value of which remains somewhat uncertain. But in any case, you take the nearly 8 billion in Universal Music stock, over 3 billion in Vivendi stock, the 6 billion in cash, call it a billion euros for the odds and ends. That gets you to 18 billion in euros in asset value. You could add another one and a half to two billion if you unlock the discount at Vivendi. Against that net asset value,

We have, you know, the share count, which is a matter of some calculation. The nominal share count, this is, no, I mean, yeah, I'm going to let you to share count, but, you know, this was the first question, right? It's a softball for anyone who's followed, but if you looked at Bloomberg, like you just laid out, let's call it 20 billion of asset value. If you look at Bloomberg, you're going to see a $20 billion market cap, you're going to be like, okay, gross, cool, like I'm getting a hold co with really complex parts and I'm paying fair value for them. Awesome. That sounds like a good. So, yeah, just please continue on the share account. Well, you know, just first of all, the nominal market cap is, I think, only about 16 and 16.8 billion euros or so. That's 3 and 4 billion among friends. So, you know, 16.8 or so versus 20 billion euros still leaves you with with some nominal discount.

But you are 100% correct in focusing in on the share count. So the amount of shares outstanding that you would show in your Bloomberg is about $2.85 billion comprised of maybe $2.95 million nominal, total outstanding less over $100 million in shares in treasury stock. However, something like 57, 58% of the shares, which are apparently or nominally outstanding, are actually owned indirectly by Boloray SE itself. Boleret indirectly or directly owns minority interests in each of the cascade of holding companies above it, which when you add them all up, essentially mean that the shares outstanding of Boleray

are overstated by more than, double. The effective actual net outstanding share count is 1.2 billion shares rather than the 2.85 billion shares that you would see on your Bloomberg.

And, you know, that's not it's a matter of some calculation but it is not a matter of controversy. You can trace it through the company's own filings. It's straightforwardly true but not quite

trivial to calculate. And I think it's been a matter of public discussion since maybe Carson Block talked about it in 2015. It's been a matter of private calculation here for at least five years longer than that. And it's been recognized in various valuation analyses that the company is put out there. However, when the company calculates the value of those internal shareholdings, it effectively nests a double discount because it nests not only the nominal discount in which this thing trades in the market, it further applies that discount to its own holdings with an

incremental discount for liquidity, et cetera. But the numbers are what they are and are not controversial. This episode is brought to you by Tegas, the future of investment research. Look, if you've been reading my newsletters, you know how often I rely on Tegas for my research. I probably read one or two expert calls a day, you know, probably average seven a week off of Teegis. They've got the largest transcript library in the world with over 75% of the private market transcripts. Whether you're curious about AI, biotech, or any niche market, Teegas has the insights you

need. What sets Tegas apart is its all in one pack platform. It's packed with expert call transcripts, management checks, panel calls, and in-depth financial data. No more jumping between different services or piecing together fragmented data. With Teegas, everything is right. at your fingertips. The best part, the insights you get are from the very people-shaping the industries you're interested in. You'll find perspective from insiders and executives that

you can't get anywhere else. To see T-G-S-in-action and understand why it's one of my go-to resources, visit tigis.com slash value. That's T-E-G-U-S dot com slash value. Trust me, once you try Tegis, you'll never look back. So look, I know you know this one named Super Bowl because you front ran a ton of my questions, but when I go back through my notes on this company, the first time, I remember hearing about this, you know, Russian doll structure and the share account collapse and everything was, as you mentioned, the Muddy Waters report, which I've got it saved in my folder, was from 2015. So I guess kind of the first question I started, and that was great background, but the first

question I tried to start with all the guests is, hey, the market is a competitive place. If you and I were muddy waters coming out with the first public report on this Russian collapsing structure, I'd say, oh, yeah, there's our obvious edge, but the Muddy Waters report has been out for 10 years, my Twitter, like people know about the discount generally at this point. You could argue for some screen discount, but so nice, like, competitive place, why is this an alpha opportunity? Why is now the time to invest here? Because it's up, it's, a lot of this has been out there for a long time. Well, you know, you run a value podcast. And when someone comes in and says, we've been involved in this situation for a long time, that may be a sign that they've

become expert in something in which they'd rather not be. Ross, you're hitting me to my core right now because you said it, I was like, oh, yeah, I've got some of those. I've been falling for two years. I did not think I'd be falling for two years. Yeah, well, we've been involved here for longer than that. We've been involved actually for roughly the last 14 years. I'm going to tell you why that's not a bad thing. You know, this is a market where people talk a lot about compounders and there's a lot of compounder bros out there. But, you know, Vincent Boleret is one of the original compounder bros.

If you look at the Boloray book value, it's up, I don't know, 61 times over the last three decades. If you looked at the O'Day book value, it's up 100 times over the last three decades. If you look at the compounding of NAV over the last 14 years or so, it's been 11%, 12% plus 1% or 2% dividends. So this has been a situation where if you're in a big discount and the discount

persists, you're still benefiting from a great deal of compounding over time. So with that as kind of the base, the reason why we think it's interesting and interesting now is that that discount has been variable over time. After Muddy Waters got very public about this and before the Ebola outbreak, which probably nobody remembers, but that was back in 15 later in 15. This, the Boloray got down to a 35% or so discount as we calculated. And so, you know, obviously if you got some

something compounding along in the teens, which episodically affords you the opportunity to exit at less than a 50% discount, and you're in there at a 65% discount, it's no great trick to generate a pretty attractive IRA out of that opportunity over various periods of time. The reason it's a little, I guess, timelier now is that for most of the history of this company, And, you know, very much including that 2015 Carson Block report, the net asset value here was, A, levered, and B, opaque, meaning the biggest single chunk of net asset value up until a few years ago was private, primarily African ports and logistics businesses, which were, you know, hard to parse out from the non-African logistics business that they had and which didn't provide a level of transparency that you would expect to see of a standalone public company and were subject to a discount for being you know African and for almost all of the history of the group there has been a substantial net

debt that neither of those things is true anymore the the three main components of nav are one public stock another public stock and cash and you know obviously it's running a substantial net cash balance sheet rather than a discount so you know sometimes when you see large net asset value discounts the discounts don't look so pretty when you look at them on a gross asset value basis again not the case here so we do think that there's there's some kind of objective reasons why the discounts should narrow as this kind of changed circumstances absorbed by the folks who follow it there's also some evolution that's happened in that you know Vincent Boleret, who was once the infant terrible of the French market, is an infant no longer.

He's 72 years old. There is a generational transition that will occur over time. He nominally retired two or three years ago. He hasn't really retired. He's still clearly the strategic force behind this thing, but he put one of his sons in as CEO of Boleray. He's now the CEO of Oday. Another one of his sons is the CEO of Havas and clearly has some mediator. chops and other son is quite involved in some of the things they do in the video game sector

and his daughter Marie Bollary is also involved in the business as part of that you know transfer over time we expect some degree of simplification within the group you know and furthermore this is just a much bigger and more important entity than it's ever been you know if if Vincolm Bolleret was the Carl icon of France in the 1990s he's now Carl Icahn, John Malone, and Rupert Murdoch all rolled into one. You know, remember the French economy is a little over a tenth the size of ours. And he, while he's routinely counted among the top 20 fortunes in France, in terms of media influence and the importance of this group,

he's easily in the top three most influential rich guys in France. You know, it's hard for something that's this important. this prominent, and has this kind of long-term track record to stay this cheap, this long. That was great. Russ, I'm going to earn my bones as a podcast host because I think you did a great job, but I've got some questions, some basic, a little more out there. But you mentioned he is the John Malone, Carl Leichon, Rupert Murdoch of France, you know? And I agree with you.

Like, I've followed this company off and on for 10 years. Those are comps. I want to ask you, is that a bad thing in two ways? And the first way I would ask you is Bloomberg over the weekend. Carl, Icon, I'm kidding, margin called on IEP stocks. Icon's returns haven't been good for 10 years. Malone, as somebody who trafficked heavily into Liberty stocks, Malone's returns, it might not even be his returns anymore.

It might be McVeigh's returns. Ballone's returns haven't been good in 10 years. Transitions from, you know, number one, to the group two, especially when you've got a personality-driven guy who's done great, often not great. Murdoch, messy transition. I think he sold out of Fox to Disney kind of at the top, but News Corp hasn't been great.

So I'm asking you in the first step of this, is that a good thing? Like, if he's lost his fastball or the transition's gone bad, like are we buying a group assets that are historically they've done great? You know, if you invested in Liberty in the 70s, you did great, but if you invested in the 2015s, you haven't done so well. The overall tracker still looks great, but it hasn't done well recently. It might not do well going forward.

Yeah, look, a very fair question. You know, however, I think we've got a reasonable answer, which is, you know, Malone's, you know, may or may not have, you know, performed as, the businesses in which John Malone has been involved have been under some pressure over the last decade. icons been under some pressure due to like leverage and you know I think in Murdox you know 93 and so I'm not sure how dynamic things have been there for the last but he's getting married again man the man's going to live forever hey look you know remarkable remarkable stamina for 93 is still grading on a curve but in any event we've we've been following this thing pretty

closely for the last, you know, decade and a half. And I think, you know, we are very comfortable that, you know, he's still got his fastball. But I don't think that you should take our word for it. I think if you look at the, you know, compounding of conservatively calculated and asset values, if you just look at the compounding of book value as a proxy, for those who are a little less intrepid. You know, if you look at the, you know, degree of highly accretive corporate finance activity that's occurred in connection with Vivendi and its investees, if you look at the timing of the sales of these ports and logistics businesses, which is brilliant, he basically used bumper cash flows from the post-COVID supply or the COVID supply chain disruptions,

pocketed those cash flows and then sold those businesses at sort of peak cash flows and fancy multiples to people whose pockets were also filled with cash flows from that period of time. It's what every investor says they're going to do, right? We bought this well. We're going to sell it at the top. When times are great, we're going to sell it at peak multiples. It's what every investor, every business owner says they're going to do. And I can promise you, right now there's a headline, oil break 70 for the first.

time since December 2021. If we had gone back a year ago, every person we talked would be like, wow, that oxy position a buffets in. I'd love to buy oxy below 60 where he's buying it. Below 60 day, I promise you, not a lot of people are doing it. A lot of, you know, a lot of these energy companies bought back stock at the top and they're not going to be doing it today. So it really was a nice job on his end.

Yeah, look, you know, he's clearly still got it. And he's got an enormous sort of net cash balance sheet and a, and a, and, and, you know, and a really kind of fantastic set of underlying businesses, you know, whether he's got decades more in him of continued aggressive compounding, you know, obviously, you know, is no certainty. I would define the actuary tables a little bit if it was decades. But all we need is some degree of continued momentum in terms of the rate of compounding and some degree of continued momentum in terms of the simplification of the group,

to drive, you know, a fabulous IRA from here. Let me ask you what I call the getting icon problem on a different level, right? You mentioned they have had net debt for forever, right? They were running these logistics business. They're now in a substantial net cash position. And the second way I worry about getting icon is, you know, I followed Icon, Malone, Murdoch for a long time. Each one of them have had deals where their hands, whether sometimes they got sued and lost for it, and sometimes they didn't get sued, but I can tell you they did.

They had their hand in the cookie jars, right? My partner, Chris, sometimes like to say, I've never met somebody where I do well and he does fantastic as much as happens in a lot of the John Malone deals, right? So I think a lot of shareholders, and this was probably the most frequent question I got, was, hey, I'm really worried that if I'm investing in Boye or Odette or whatever it is, I'm really worried that, you know, I'm kind of what I call in my head getting an icon. I'm going to invest, I'm going to buy it at 550 and a take under, or he's going to, you know, I'm just not going to get that return.

He's going to capture it all for himself. And that's kind of what a lot of Titans, a lot of wolves do, right? So how do you think about that risk, controlled company where you've got a very financially sophisticated person who might think, hey, that $6 billion, it'd be nice if all of it was mine instead of the, I think it's 30. Well, he's got the collapse over 50%. But if all of it was his, he'd probably prefer that. Yeah, yeah.

look, what will be done with the $6 billion euros is probably the most important question. We do have some sense of the direction of things. Last year, the Bollary Group did a self-tender. Stock right now is at about $5.65 euro or so. that self-tender was done at six euro. It was actually 575 plus a quarter that was contingent on the closing of one of these transactions, which did in fact close. So they did a self-tender for up to 10%, up to 9.9% of the company. That's the nominal shares outstanding. Obviously, it's a much larger portion of the effective shares outstanding. They ended up bringing in about

3.3% of the shares nominally outstanding, which amounted to over 7% of the effective shares outstanding. And then since maybe March of this year, there's been a fair amount of aggression in terms of internal repurchases at every level. Sophie Bowl, which is the entity that owns O'Day, has been buying shares in O'Day. O'Day's been buying shares in Bollary. Bollary has been buying shares in itself. Vendee's been buying shares in itself. and so there, you know, there's been a fair amount of anti-delude of internal share. Repurchase activity, we expect that to continue. It's accretive at such large discounts for everybody,

but it also has the tendency to increase the proportionate family interest in the whole. You know, I think, you know, you're not going to get a take under here, but I think you will get continuing attempts to, buy out, you know, elements of the minority at superficially attractive premiums to the preceding share price, but at substantial discounts to the full nav. The other thing that we think will be a use for some portion of the six billion euros on balance sheet is that, you know, The Bolleray entity, which formerly housed these massive ports and logistics operations, which together were sold for 11 billion euros or so,

doesn't have nearly as much going on within it as it used to, and it does have some degree of G&A, and it is an entity that has been overseen by Cyril Bolleray, who is an ambitious and competent able guy. There does seem to be some thought that a third leg of the stool beyond UMG and Vivendi might at some point be added to the mix. It's very clear from both their verbiage and the track record that they will be opportunistic buyers rather than folks who have some PowerPoint presentation that will decide the movement of large amounts of money on a basis that is not kind of careful and opportunistic. well i'm glad you mentioned actually i do want to come back to the the third leg of the stool but let me just ask on share repurchase because i got this and i'll prove my my bones as a podcast

host to me prep if you look i'm looking at their uh proxy from this year or whatever it's called in uh in france and if you look it's right on page four hey authorization for uh for share bybacks 9.9% of its shares great love to see it maximum purchase price 650 euro now as you said The stock is at $5.55.5. So if we start hitting up on that maximum purchase price, you know, champagne problems. But we mentioned once you look through the shares and you get to that share, Nav is a heck of a lot higher than $6.50 per share. I don't want to read too much into this, but, you know, I think the previous year they had a $5.95 top and they bumped out of $6.50. But why are they, is there anything to read into them setting that $6.50 limit?

And I asked that earnestly, not critically, because it's very possible that there's French regulations I don't know about. It's very possible. They don't want to tip their hand, all sorts of things. But to me, if I was like, hey, I think my nav's 20 and I wouldn't care if I was buying back stock at 6, 6, 657. Obviously, I prefer it lower. But that top just kind of jumped out to me. So I wanted to ask you about that and prove I read the proxy. Yeah, look, I think it's a long game for the Boloray family.

And they don't want essentially people front running them. So I think they've always been fairly measured in terms of the way that they conduct their buyback operations. They've tended to buy on weakness rather than strength. And they've been typically constrained by the volume in the stock in terms of exactly how much they can repurchase. I haven't seen a period where those kinds of caps that are in the annual meeting document have really been a binding constrain for them. I think it's more about him telegraphing that, you know, you don't want to pay up for the stock to try to get ahead of my buyback.

You know, we're going to be very measured about it. I will say, though, that if you hit, you know, if you're on Bloomberg and you hit your GPTR function and you track, here we go, and you track when the family members or when O'Day buys its shares, you'll see that you've tended to do very well by investing alongside the, you know, the Boleret family or Vincent Boleret in terms of when he chooses to increase his stake. You know, if Vincent Boleroy jumps out a window, you better follow him because there's probably money. It's funny you say that because when you look at, it's not tons of transactions, but when you look, it's like December

2003, buys it 520, six months later, somebody's selling, approaching six or something, you know, so it's certainly true. Let's talk a little bit more about the, let's talk a little bit more about the cash on balance sheet. So repurchases, great use of the cash. It's always nice to have the cash, but it's clear they want to build a third leg of the sole. And the other most common question I heard that people heard, look, one way someone framed it to me was, why would I buy Buea when I could just go by the target, right? Like, would they want to internalize Vendee? Would they want to internalize Lillardier?

Is that the other one? Lagardeer. Lagardeer. Gosh, I really need to take pronunciation classes. So they're going up by the targets and go ahead. Go ahead. Well, the answer is that, you know, over long periods of time, you've done the best by being the closest to his interests

rather than trying to get ahead of him. and some of that is because he's clearly very attentive to not encouraging people to front-run him. And the way that he does that is by being extraordinarily patient and sometimes completely reversing field. So, for example, two years ago, I think everyone was convinced he was going to shortly launch a takeover on the whole of, or at least the hard majority of Vivendi, because he could only go up to 30% in Vivendi without launching a takeover, a mandatory... If you're on YouTube, I'm laughing because I remember this very, very well.

So, you know, a bunch of, you know, the European event-driven guys got kind of snookered into Vivendi because it seemed really straightforward. Hold on a sec. We got great underlying assets. We got like a 40 plus percent discount, and we got a guy who everyone says wants to, you know, buy the thing in entirely. And, you know, with everyone, with those European event-driven folks positioned thusly, Vincent Bollary then reverses field and says, oh, actually, we are now going to break up Vivendi,

which over the long term means that you may well unlock the 40 plus percent discount to Nav at Vivendi but it does mean that if you're playing a short-term garbitrage versus his takeover you're awfully disappointed and so the air comes out a little bit of Vivendi and then what does he do? He starts buying back shares again at the Vivendi level which has the effect

of concentrating the Boloray shareholding which would take him above the 30% threshold but before they have to cancel the treasury stock they're going to get through this breakup of Vivendi which is effectively

going to allow him to get over that 30% threshold without ever having to make a mandatory bid on the remainder of each of these constituentities he's a hard guy to outwit. You're better off following as closely as possible.

It reminds me, not this, but Brookfield asset management, I can't remember if they've implicitly said it in public, explicitly, whatever, but at one point they're like, look, yeah, they are take under artists, right? You look at what they did to GGP or TK or a bunch of others. They will take, if you're a public company, they will take you under, they will knife the public shareholders. But the one thing they've said is, look, if it's got Brookfield in the name, that's our reputation.

As shareholders are our partners, we're going to treat them really well, really fairly. Believe it, don't believe it, you know, whatever. I'm just kind of relaying it. But they're like, look, if we control 30% of a company and it doesn't have Brookfield in the name, then the knives are out, right? If we think it's cheap, we're going to try and take it under.

If we think it's expensive, we're going to try and get out of it. Like, we will play as many games as possible. But it kind of reminds you of that. It's like, hey, if you've got these really attractive assets, if you like the discount of it, like don't try, game around. trying to catch a 20% pop, because, A, you might try to gain a 20% drop, and B, you'd just be better off at the parent. Let me ask another one. I think the other risk that I didn't hear

a lot of people ask, but, you know, as a simpleton who lives in the United States that jumps out to me, French regulatory risk, right? Like, how can I not be in a French policy expert? But you've got this big corporate raider who has a lot of political pool, but, you know, France politics can be pretty volatile, the taxes can be pretty crazy over there. How can I get comfortable, you know, hey, if it trades for a 50% discount to NAV, great, but if they're going to slap 30% liquidating taxes or, you know, tax everything, how do you kind of get comfortable with that French regulatory risk? Well, look, a little bit of that comfort is that we've been investing in France, as you know, for quite some time. And while it is different, you know, it's not utterly capricious.

And part of our confidence is derivative of the expertise of Vincent Bolleret in navigating French politics. You know, he was a good buddy of Nicholas Sarkozy. He was and is something of a, you know, has a nice relationship. with Emmanuel Macron. He has some, you know, he's something of a kingmaker in terms of what some might call the French far right, via his owner control of Canal of C News, which is a part of Canal Pluse and which is the Fox News of France. You know, he's a pretty adroit guy. I think if the French far left is where he's the least plugged in and where, you know, both domestic and foreign investors in France would be the most concerned if they really came into a substantial control of the French government.

But that doesn't seem to be an intermediate term prospect. That's great. So we mentioned there's Odette, which is the kind of parent company, Mori Liquid. I'm not asking you to recommend either one versus each other. But I just want to ask, how do you think it plays out, right? Because again, if I remember correctly, if I looked at the finals, right, has been buying shares of way in the public markets. So, you know, if I told you, hey, three years from now, it does seem like they're setting up. You mentioned the simplifications, the buybacks, the intercompany simplifications.

How do you think this pays out three, five, seven years? Like, are we playing for a full collapse here? and then this is kind of a normal publicly traded holdcoast dog. Do you think these things are going to be separate for a while? Like, what's the event path kind of look like? Look, I think a lot of people are looking for or have been looking for an O'Day-Bolet merger, which would really unlock the complexity in calculating the true share count here. We would welcome such a transaction.

I think ultimately the O'Day level can be eliminated and still preserve family control. However, I'm not certain that that will happen over the short term. O'Day is an interesting situation as a stock because you get the Bollary sort of assets and discount at a further discount. one layer closer to the family. We got involved in O'Day at a 20 to 30% further discount from the value of its stake in Bollary. However, today, that discount has narrowed to around 10%. That's, again, a further discount layered on top of the discount at the Bollary level, which is roughly two-thirds.

However, the O'Day minority has gotten awfully small. It's only about 7% or so of O'Day. that's held outside of the group. And so the liquidity is quite limited and the prospect of a sort of squeeze out is quite live. And because the internal cross-share holdings are mostly via Bollary,

you could sort of see a scenario where somebody tries to squeeze you out at the O'Day level and just points to the value in the marketplace, the stock value of Bollary as the sort of fair price. for O'Day and where that could be, you know, a tricky prospect with the family continuing their ownership essentially at the O'Day level, but squeezing out the minority. So, you know, that's, I think, the trade-off at the O'Day level is, on the one hand, you're one layer closer

to the family, and you're getting a little bit of a further discount. On the other hand, very limited external float, very limited liquidity, and some prospect of getting squeezed out at a premium, but effectively crystallizing the massive two-thirds discount at the Bollary level. Bollary, on the other hand, you know, is reasonably liquid and has a much larger, you know, external public float. And I think if there were an attempt to have a squeeze out at the Bollary level that sought to sort of crystallize, you know, greater than 50 percent or, you know, discount, there would

be very organized and substantial opposition to that. You know, so I think your risk of getting squeezed out of the Bollary level is, at an unfair price, is lower. And frankly, it gets lower as more and more people come to understand the quality of the underlying assets, the nature of the cross-shareholding and the discount that's currently in there. Let me just say as quickly on Vivendi. Obviously, there's a lot going on there. They've got the piece, they've got the investment in UMG, which is liquid. And as you said, you kind of get a discount on discount. But just quickly how do you look at the, if you're doing, if you're investing in a hold coat and they've got one major piece and it's Vivendi, like yeah, you're going to say, okay, the public market

price of the stock is X, but you're also going to do work because you and I have both seen, oh, yeah, it's invested in some memesquee stock that they're 90% of and X is $5,000 per share. but I think this thing might be worth five pennies for sure, you know, so obviously that's not many, but how do you think about the value of the vending just when people are getting comfortable there or a little bit of work there? Yeah, sure. So again, biggest component of NAV for Boleret is UMG. That's, you know, a fairly transparent situation. You know, you got the company. It's got its financials that are all public. It trades it 25 times forward earnings for a pretty unique, you know, franchise as in the sort of

the record label oligopoly, people could have opinions about whether it's a little bit rich or a little cheap, but it's fairly straightforward. You know, if you want to, you can look up Bill Ackman's deck on how great a business universal music is. But the cash is the second largest component of value, $6 billion in cash is $6 billion in cash. The third largest component of value is Vivendi. And there is some complexity, but there's no element of it that is.

is, you know, some sort of like overvalued kind of meme situation. The key components of value at Vivendi are firstly Canal Plus, which is a pay TV business, headquartered in France, doing the bulk of its business in France, but generating the bulk of its profits overseas, primarily in Francophone Africa. That's also in the course of taking over a South African cable business, business that is probably the dominant player in Anglophone, Africa. And so, you know, and it's also the entity which owns C News, which is, as we said, the French equivalent of Fox News.

The second major component of value within Vivendi is its 10% stake in UMG. So that's fairly straightforward. The third major component of value there is in the publishing business predominantly via LaGuardere, which controls Hachet, which is probably the number two global publisher, and also a major travel retail business. So when you get your water bottle confiscated by security going in, and then you pay like five bucks for a bottle of water, past security, you know, internationally, especially. you're you're you're you're probably putting money in Vincent Bollary's pocket indirectly and then the final piece of NAV there is Havas which is

top 10 global ad agency and which you know has you know all of the same merits and demerits of the major ad agencies globally might ultimately be a target of consolidation bid, post the breakup of Vivendi, but again, a fairly, you know, straightforward thing.

There's also some odds and ins that Vivendi is trying to extricate itself from, the most kind of notorious of which is a fairly unsuccessful investment in telecom Italia. This episode is brought to you by Teagueis, the future of investment research. Look, if you've been reading my newsletters, you know how often I rely on Teagas for my research. I probably read one or two expert calls a day, you know, probably average seven a week off of Teagueis. They've got the largest transcript library in the world with over 75% of the private market transcripts. Whether you're curious about AI, biotech, or any niche market, Teegas has the insights you need. What sets Tegas apart is its all-in-one-one-pack platform.

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But man, what a story and wild, wild history there. I'm looking at my notes. We're running up against an hour, so I don't want to go too long because on me, we started a little bit late. But I think we've done a nice job running through all this, running through the value, running through the opportunity.

I guess I'll just pause there. Is there anything else you think investors as they research it? I mean, I think the real thing you hit on was why now? And the reason is it's been, you know, this has been out there for a while, we seem to be in the late stages of buybacks, simplification, like really trying to unlock the value. But anything else you think investors who are kind of researching this or anything should be thinking about doing anything like that?

You know, I think that the breakup of Vivendi will be a major event-driven kind of story in Europe in the fourth quarter of this year or maybe into the first half of next year, I think that'll bring a lot more sort of eyes on this situation. I think the NAV has never been as unlevered or as transparent as it is now. And I think that the simplification and succession process is underway such that you know, you may not get essentially a full simplification, and you're certainly not going to get a liquidation, but I think the gravitational pull is towards a substantially narrower discount than the two-thirds you're at presently, and that for the intermediate term, you're likely to continue to compound that nav at double-digit rates in a fairly straightforward way, such that it's got

really, you know, a fairly high perspective IRA for a unlevered situation where the underlying components of value are fairly high quality. Let me end by asking you one kind of out there question. You mean $6 billion of cash on the balance sheet, right? You wake up tomorrow and let's say they do an acquisition and I'm not telling you what the acquisition is. They just do an acquisition. Vincent Boyer's name is on and he says, hey, I've got all this history of all this background of doing great deals, three billion dollar acquisition on the table. Forget the market response to everything. Would you be happy about that deal because of all that background you listed? Or would you be kind of a little bit sad? It's like, hey, we got $6 billion cash. We're trading

a third of nav. Why aren't we buying back shares? How would you feel about a big deal to make use of that cash? Because it does seem like that's kind of where it's going. I don't think it's an either or. I don't think they're going to, you know, you almost implicitly acknowledged that when you've when you posed the question it's a three billion euro deal on a six billion euro cash uh whole i did choose three yeah that was one of the reason i chose so i think the answer is they do both um i also think that um the breakup of vivendi will create some uses for the cash at the boloray level uh because you're effectively taking one 40-ish percent discount and you're converting it into four different entities,

one of which you may try to monetize at a substantial premium, and the others of which you may either try to monetize at premiums or try to double and triple down in at discounts. There's a lot of optionality that gets created when you take an entity which you effectively, but not de jure, control and break it up into four pieces where you exercise some degree of influence, over, you know, the strategy and the accounting.

That's great. Well, Ross, I appreciate you having back on. We've done two really thousands of anyone. Again, for CCIs, which were very small, but I got a lot of people like, this is one of the most interesting ideas we've heard. And then we've got a complex front, Choldko, you know, next time we come, I'm sick of France.

Third podcast, we're going to do anywhere else in the world. All right, hold on. I do want to push back, though. The CCIs are small in terms of their daily liquidity, but the aggregate amount outstanding is well over a billion euros. It's not a model train set. If you've got 30 seconds, we don't have to go through all of them. People can go listen to the first podcast and everything.

But if we can do a 30-second update, how are you kind of feeling about the CCIs overall? You know, French politics have evolved since then. The economy has evolved. Interest rates may be coming down globally. How are you kind of feeling about the CCIs now? The way that the French banking market sort of lags changes in interest rates, leaves the French retail banking business with a lot of continuing tailwinds over the next several years.

The tailwinds maybe that they didn't enjoy, but others in the European banking business did over the last couple years. In terms of the credit agricultural group, they're just ballooning with common equity tier one capital. They're at like 108 billion euros today. They're building capital at a pace of 6 to 8 billion euros a year. You know, they've got plenty of capital and a sort of burgeoning over capitalization that creates an incentive for them to clean up the CCIs. So we feel reasonably constructive on the likelihood that they'll make a move on them. In terms of French politics, look, I can't imagine a Frenchman trying to make reasonable sense of U.S. politics. So I won't try to hold forth on French politics, but I will note.

that the apparent outcome of all of the summer's uncertainty as to who would be the prime minister seemed for the time being to have resolved itself in a way that is fairly favorable for commercial interests. A sort of a center-right guy has been tabbed by Emmanuel Macron as the PM. And while neither the left nor the far right like the guy, they would have to get together to get rid of them, and they hate each other more. Well, Russ, this has been great. I appreciate you coming back on for a second time.

Looking forward to having you back on for the third time. Looking forward to grabbing some sushi with you in the near future. But Roslund, thanks so much. We'll chat soon. Always a pleasure. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast.

Please do your own work and consult a financial advisor. Thanks. Thank you.