Outlook: UBS/CGIP

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The Independent Online
THE DISCOUNT to net asset value that British investment trust shares have begun to trade at seems bad enough, but as this column pointed out yesterday, this apparent anomaly has got nothing on French industrial holding companies. As if on cue, Warburg Dillon Read yesterday forked out pounds 300m to buy 10 per cent stakes in the interlinked Marine-Wendel and CGIP, presumably with the intention of helping to unlock some of the hidden value that lies within them.

The names mean nothing, but the sort of companies they are invested in do. All are top-drawer names. CGIP, for instance, owns 20 per cent of the IT services company Cap Gemini and a similar percentage of Europe's top automotive components group, Valeo. CGIP is half owned by Marine-Wendel, which in turn is a half owned by Wendel-Participations, a family holding company.

The French have a wonderful name for this type of capital structure; it is known as a cascade and although pretty much anathema to Anglo Saxon investors, it is common enough across the Continent.

These structures obviously have their advantages to those at the top of the cascade, but lower down it results in some quite staggering discounts - 36 per cent in CGIP's case and more than 40 per cent with Marine-Wendel. Fortunately, CGIP's chairman, Ernest-Antoine Seilliere, one of France's leading industrialists, seems as keen on correcting this position as his new City shareholders, so he might be prepared to work with them in attempting to do so.

Either way, as European capital markets converge, those clever City investment bankers seem to have discovered a new way of turning base metal into gold. Last year it was the euro-bond convergence play. Next year it looks like being these Continental holding companies. If enough people start recognising the value, realising it will in case become a self fulfiling prophesy.

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