Claude Bébéar, the Risk Avoider

Claude Bébéar is the founder and former CEO of the insurance company AXA. I believe the AXA group is currently the third largest insurance company in the world (just behind Allianz and Generali Group). Bébéar built AXA through mergers and acquisitions, most notably the Drouot Group and the American insurer Equitable. More can be found about AXA at Wikipedia.

The following are some excerpts from a great interview of Bébéar done by Michael Villette (mentioned in Malcolm Gladwell’s essay “The Sure Thing”). In the interview, Villette’s goal was to test the common belief that Bébéar took more risks than others (both in business and insurance), was a business innovator, and took advantage of others using insider “industry” information.

MV: Explain to me how starting in 1981 you managed to carry out an uninterrupted sequence of acquisitions in France and then in other countries. I would like an explanation with no magic, with facts and figures.

CB: There’s no magic in any of it, nothing extraordinary. The first coup was Drouot, which we bought at a bargain price, because of the panic after the left won the elections.

On the Drouot acquisition:

… the result: we acquired for 250 million francs a company that was valued at 5 billion francs four years later. . . .

MV: Why was Drouot worth so little to start with and so much later?

CB: It’s just like Equitable. People study the issues very poorly. They look at things superficially. Drouot was a company with a very good business that had done some stupid things in real estate. It was taken over hastily by Bouygues. Bouygues knew nothing about the profession of insurance, so he stuck with thinking like a financial analyst, that is, in the short term. He said to himself: “Oh, there’s a hole in this business, it’s terrible!” He didn’t see the value of the underlying business. We bought at a very low price because it seemed to be a company practically on the skids, but since we were insurance professionals, we restored the business immediately, we increased premiums, and so on, and the business took off very quickly. When we bought it, it was losing 200 million. The following year, the budget was balanced, and the third year it earned 200 million.

On the Equitable acquisition:

The entire financial press thought the company was done for, and Wall Street was expecting a bankruptcy at any moment.  … I went to New York, I took a look, I talked with the management, and I said to myself: “This one too has a fantastic business.” So I had to see how big the financial hole was, in comparison with the value of the business. We studied the company for five months, something no one else was doing. We made a bet on a sure thing. . . .

What’s marvelous in this story is that when we did the deal, the head of the company said to me: “Claude, now you know more about the company than I do.” And it was true. We had studied it thoroughly. To do deals like that, you have to be in a profession you know, do a very thorough study, and have the ability to make quick decisions. These were the advantages we had over the others. There was no miracle.

On what constitutes a “good deal”:

MV: If I understand you correctly, correct me if I’m wrong, to do a good deal, you take advantage of a moment of vulnerability of the other party (which doesn’t mean you treat him badly, you can be elegant) and you play on the asymmetry of information.

CB: Absolutely.

MV: You’re not against that interpretation?

CB: No, not at all. You know, in a company, there’s the objective and the subjective. In addition, a company can be worth something for me, considering the business I’m in, considering the know-how I have, and for the next businessman it could be a catastrophe, a millstone. We were just talking about Bouygues: he bought an insurance company by chance, he realized it was not his kind of business, and boom. He went away. It was a good decision by a company head.

On taking insurance risks:

We took small risks in the area of reinsurance, but not on a large scale. It’s easy to do reinsurance. You can sign up to whatever you want. We didn’t want to buy shares in a reinsurer but to learn the business ourselves.

On whether is made his money by being an “innovator”:

MV: In writing the history of major businessmen, to explain their careers, it is often said that they were innovators. And you? You never present yourself as an innovator?

CB: In France, the inventor of modern automobile insurance was a man named Jacques Vandier. He was the head of Macif. He really invented new criteria. I have to admit that I never invented anything. What I was able to do was to recognize the weakness of other companies and exploit that weakness. That is, when opportunities came up, I dared to do what other’s didn’t, but without taking considerable risks. This was simply because facing me were timorous people, bureaucrats, notables.

On his interest in business:

Your last question is why I’m not richer than I am? The explanation is simple. First, I’m the son of civil servants, my parents were teachers, I was more tempted by business and power in business than by wealth. Second, I joined a mutual company where, normally, you’re not supposed to get rich. . . . Later, I started to get wealthy when stock options became legal in France. . . .

You know, it’s never entertaining to manage a company. What’s entertaining is to make progress, to try to do better than the others, to do things that the other’s don’t do. That’s the entrepreneurial spirit.

Claude Bébéar is very much a value investor (protecting himself from risk and uncertainty) whether he calls it that or not. Definitely no Warren Buffett, but an interesting story nonetheless.

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