Invest in Cirque du Soleil, a bet too risky?

Investir dans le Cirque du Soleil, un pari trop risqué?

Eduardo Verdugo Associated Press
In the eyes of some observers, the debacle of the Cirque du Soleil is a reminder that it is not always possible to carry out the dual mission to generate returns while supporting québec-based companies.

The purchase offer of the creditors of the Cirque du Soleil-risk to set aside the quebec presence within its ownership structure since its foundation in 1984, but also lead to losses of tens of millions of dollars to two of the most important institutional investors in the province, the Caisse de dépôt et placement du Québec (CDPQ) and Fonds de solidarité FTQ.

In the eyes of some observers, the demise of this entertainment business just remember that it is not always possible to carry out the dual mission to generate returns while supporting québec-based companies. “It’s called an investment, has dropped the professor of strategy at HEC Montreal Louis Hebert, in a phone interview Monday. There are some that work and others that don’t work. We have seen the pros and cons of strategies to promote québec companies. “

Seen since last Friday as bid leader as part of the process of the auction of the Circus, the offer of at least US $1.2 billion of the group of secured creditors risk to rule out the trio of current shareholders — the Fund, the fund texan TPG Capital and the chinese company Fosun — if it is not up to the load. He could lose everything.

On Monday, the CDPQ has not wanted to advance on the amounts that were in the game in the folder. In its most recent annual report, the manager in quebec was limited to estimate its initial stake of 10 % acquired in 2015, worth between 50 million and 100 million dated as of December 31 last year. This would be in addition to the amount invested in February in order to redeem the 10 % that still belonged to the co-founder Guy Laliberté. The Fund had also provided US $30 million to the business last year.

When the Circus turned to the Law on arrangements with creditors of companies (CCAA) at the end of June, the solidarity Fund QFL was quick to confirm that he did not expect to revise the colour of the US $30 million loaned in the last year. During a telephone interview with The canadian Press at the end of June, the president and chief executive officer of the Fund, Gaétan Morin, had recalled that the risk was part of the investment strategy of the institution.

“The question is : is this is the kind of investment in which they [the Fund and the Fund] were to start ?” wondered the expert in corporate governance and professor at Concordia University Michel Magnan, at the end of the wire. “The Circus is in a sector that is dependent on discretionary spending. If the economy slows down, it is certain that it will crash. “

Mr. Magnan is not, however, gone so far as to criticize the financial interventions made by the Fund and the Fund, stressing that it was still “easy” to analyze the record ” after the fact “. The professor also believed that it was “difficult” to judge whether the CDPQ had reason or not to redeem the past actions of Mr. Laliberté in February last, while the COVID-19 had already caused the cancellation of shows in China, where the Circus was now.

Conditions

The proposal of the secured creditors fixed the minimum conditions to be met for the filing of any potential rival offerings and precludes the purchase agreement originally entered into between the Circus and its current owners. It proposes to put up to US $375 million without government support — at the disposal of the company. Two funds totalling US $20 million) will also be created to pay the sums due to the ex-workers and craftsmen. The agreement provides a commitment for the maintenance of the headquarters of Cirque in Montreal for at least five years.

While Mr. Magnan doubt this promise, Mr. Hébert, himself, said that the lenders wanted to avoid provisions that are too burdensome. “If they do not have the obligation to keep the headquarters in Montreal, without a doubt, that the price obtained [in the case of a transaction] will be higher, said the professor of strategy at HEC Montréal. This may be perceived by some buyers as an obstacle. It is unfortunate, but this is the way that the financial investors think. “

Investors will have until 18 August to submit a proposal for a rival to acquire the Circus. If necessary, the auction will take place on August 25. The transaction is expected to be completed by September 30. Quebecor will not be part of the auction, but the conglomerate has nevertheless reached out to the creditors. Through his company, Red Moon, Mr. Laliberté would still be in the process of analyzing the folder.

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