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Carlyle court battle ends in triumph

The Washington DC-based private equity firm has finally wrested majority control of French portfolio company Otor from its founding management team after a protracted legal struggle.

Following a court decision in Paris, Carlyle Group has taken control of portfolio company Otor, the French paper products manufacturer, after legal battles with the firm’s founders going back more than three years.

Carlyle acquired a 20 percent stake in Otor for €45 million ($54 million) in February 2000, when the target company was on the verge of bankruptcy. Just over two years later, in March 2002, the buyout firm launched an arbitration procedure claiming that, as the company had failed to meet agreed profitability targets, it should be allowed to assume majority control. Otor founders Jean-Yves Bacques (CEO) and Michele Bouvier (managing director) unsuccessfully sought to prevent the arbitration procedure.

In February 2004, a judicial inquiry was commenced into alleged criminal activity at Otor following disclosures made to the Paris public prosecutor by the company’s auditor Durand & Associes. These allegations led to Bacques and Bouvier being taken into custody as part of the investigation in December 2004. In March 2005, they announced they would be resigning their posts until the dispute with Carlyle was resolved. The two men were replaced by COO Jean Marie Paulte and banking consultant Fabien Chalandon on an interim basis in the same month.

In the meantime, Otor went on the offensive against Carlyle. It removed the firm’s representatives – Jean-Pierre Millet, Franck Falezan and Jonathan Zafrani – from its board of directors following a vote at its annual meeting in June 2004. Three months later, Bacques took Carlyle and French bank Credit Lyonnais to court in New York, claiming a conflict of interest arising from Credit Lyonnais being an investor in one of Carlyle’s funds at the same time as being a major creditor to Otor (this case has not yet been resolved, though a decision is understood to be due soon).

In April 2005, the arbitration court ruled in Carlyle’s favour and ordered Otor to allow Carlyle to convert its bonds into shares, enabling it to take majority control. Bacques and Bouvier took the decision to the Paris appeals court, which has reinforced the original decision.

Following the decision, Carlyle has taken a 78 percent stake in Otor, with the remaining shares expected to be acquired in the autumn. In an interview with Les Echos, Carlyle’s Millet said the firm had no intention of breaking the company up, and that it “continued to function well thanks to its decentralised management system and the very competent professionals heading its various business lines”.