CDC takes charge of Orpea as debt deal struck
After months of scandal and speculation, under-fire French elderly care group Orpea has struck a deal to restructure its debt with the help of new investors including French public sector financial institution Caisse des Dépôts (CDC).
Click here to read more about the Orpea scandal and here to read more about the French nursing home market in HBI Intelligence.
The long-awaited deal makes the CDC’s consortium the majority shareholder and gives it control of the board. HBI speaks to three market experts to gauge both the public and shareholder reaction to the news. At the time of writing, shares in the group are down over 59% since Friday’s opening last week.
“In short, it is a disaster for all investors and a lesson about the fact that one cannot make excess profits on public resources at the expense of fragile clients,” equity analyst at AlphaValue Yi Zhong tells HBI. “The CDC taking control will allow fresh cash inflows but also means no hope for the return of high profitability and the resumption of dividends at least for the mid-term”.
The deal means the CDC, alongside three other French insurers – CNP insurance, ANIF, ANSCF – take the lion’s share of the group with a 50.2% stake, in exchange for the injection of €1.5bn in cash. Unsecured financial creditors supporting the agreement would own 49.4% of the capital, leaving a measly 0.4% slice for existing shareholders.
As part of the takeover, the CDC is demanding changes in governance. The proposal stipulates that seven out of the thirteen board members must be appointed by the CDC and that Orpea will not be taken private within the next five years.
Given the level of national and political interest in Orpea, some form of government-linked solution seemed an inevitability to some. One analyst cites the appointment of Guillaume Pepy to chairman of the board of directors at Orpea as a strong indicator of this (Pepy is also the president of the French national rail authority).
“You can see the hand of the French government in cleaning up the mess and restoring confidence. There’s too much at stake for them, they can’t risk more reputational damage and they want to get rid of this now which is why they’re putting €1.5bn of new money,” says Stephane Pichon, Found, YourConsult.
“The majority of the public are largely suspicious and certainly there has been a lot of pressure for more government intervention, especially when it comes to health and social care. France is quite interventionist – a lot of civil servants don’t accept that private companies are private and sometimes they force and use government agencies,” one existing Orpea shareholder tells HBI.
They also give their dismayed reaction to this week’s news: “I’m ruined, I’m disappointed, I’ve lost a lot of money and in my view, it was not justified. It became a bit of a witch hunt. Things have been easily exaggerated – now the shareholders are paying the price for that. Orpea used to be considered the best-in-class. Maybe processes were not good enough but I would still not describe them as an evil company. There are lots of forces at work – it’s a combination of bad blood and sensationalism.”
Another party who will be angered by the news is Concert’O (the consortium of Mat Immo Beaune and Nextstone who combined own 5.5% of Orpea’s shares) which tried at all costs to avoid share dilution.
“Everyone who had invested or lent to Orpea in an insecure manner has been wiped. Concert’O can’t be happy but there was no alternative offered. It is asking for a general meeting of the shareholders, but it’s probably a little too late,” Pichon says.
Orpea’s objective to achieve a more stable financial structure and finance the transformational refoundation plan outlined in November has been met. However, questions around the model of private nursing home systems – and regulation – are expected to persist.
As Yi Zhong points out: “The deal will allow fresh cash inflows but also means no hope for the return of high profitability and the resumption of dividends at least for the mid-term. The up-to-come new industry standards remind us of the concern about the viability of all nursing homes.”
“The big question is, does this kill the model of running private nursing homes with capital? I don’t think so. The public sector has allowed the private sector to manage because they weren’t managing it well. There’s not many countries that manage nursing homes well from the public sector perspective,” says one shareholder.
Orpea’s share price is now 96% down compared to the start of January last year, before Victor Castanet’s book ‘Les fossoyeurs (The Gravediggers)’ precipitated the fall (it currently sits at €2.87). Castanet says this deal could mark a turning point for the sector. “If the CDC sticks to its promises the demands for profitability will abate, which should eventually improve conditions in the care homes,” he tweeted.
The deal is pending as it awaits formal regulatory approvals and validation by the Tribunal Commerce de Nanterre.
HBI understands though seen as a government bailout in some quarters, the CDC operates more like a sovereign fund, albeit one overseen by Parliament.
We would welcome your thoughts on this story. Email your views to Michaila Byrne or call 0207 183 3779.
