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Spin the wheel

18 October 2019 By Christopher Thompson

Fancy a flutter? French President Emmanuel Macron is betting French voters do with a cut-price share purchase plan of national lottery operator Française des Jeux. A successful public listing, which is slated for next month, will help fatten the state’s coffers. It would also set the table for a far larger sale of the $18 billion Paris airports operator in 2020.

Finance Minister Bruno Le Maire told local media that retail punters will get one free share for every 10 shares purchased as well as a 2% discount on the offer price. But the initial public offering’s symbolic value is arguably even greater than its economic worth: FDJ, which comprises both the national lottery and an online sports-betting company, would be the first leg in Macron’s much-vaunted plan to privatise state-owned businesses, productively redeploy the funds and signal France is open for business.

FDJ is projected to make around 325 million euros in earnings before interest, tax, depreciation and amortisation in 2019, according to the company. Assuming a minimal net cash position, that implies the company’s equity could be priced at 3 billion euros, according to a Breakingviews calculation which applies a multiple of just more than 9 times EBITDA, in the middle of global peers.

That could net the government some 1.5 billion euros, assuming it cuts its stake from a current 72% to 20%. Macron said he wants to use the proceeds to pay down the national debt and launch an economic innovation fund. Given FDJ’s declaration to distribute up to four-fifths of earnings, income-hungry investors will probably be more interested in shares potentially yielding a finger-licking 5%, assuming a 31% tax rate.

A successful IPO would smooth the way for Macron to sell down the government’s 51% stake, worth 8.2 billion euros, in Aeroports de Paris, which runs Charles de Gaulle and Orly airports outside the capital. That plan has been complicated by opposition politicians’ pledges to hold a referendum on the deal, although it is questionable if they will garner the requisite public support to do so.

Of course, if FDJ’s listing bombs that deficit might narrow. Conversely, a pop in the share price may well urge French voters to think twice before saying “non” to more privatisations. If Macron’s opening IPO gambit succeeds, FDJ would be a mere amuse-bouche to the meatier prospect of ADP.


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