Get Fitch quick

If Fitch Ratings, the bond rater, ever scrutinized its parent company, its report might read something like this:

Fimalac is the E1.26 billion-in-sales holding company of French entrepreneur and bon vivant Marc Ladreit de Lacharrière. The closely held, Paris-based company is a true conglomerate: It consists of highly disparate businesses ranging from a furniture retailer to a global bond rating agency. Lacharrière, 63, who controls 71 percent of Fimalac's voting shares, recently disposed of two metals-processing businesses, CLAL-MSX and Engelhard CLAL, for E60.5 million ($72 million), and a chemicals storage concern, LBC, for E243 million, and used the proceeds to pay down loans. However, this still leaves Fimalac saddled with two problematic companies: tool manufacturer Facom and furniture maker and retailer Cassina, both of which appear to be hard-pressed to compete against lower-cost rivals. Fimalac took a E248.7 million write-off on Facom in 2003, which largely accounts for group profits plunging E329.7 million into the red last year. The company had to resort to a E100 million rights issue that same year to shore up its balance sheet.

But in addition to Facom and Cassina, Fimalac owns global rating agency Fitch, far and away the star of the group. Fitch now generates one third of Fimalac's sales; the agency's operating earnings have increased nearly 280 percent over the past five years, to E100 million. The world's No. 3 rating agency, behind Moody's Investors Service and Standard & Poor's, Fitch alone is likely worth more than all of Fimalac, which as of May 20 had a market capitalization of E1.17 billion.

Fimalac's shareholders therefore would ostensibly benefit from the sale of the company's remaining industrial holdings; indeed, the stock rose 43 percent in the 12 months through May 20 largely because investors are speculating that Lacharrière will dispose of Fimalac's other businesses and concentrate on Fitch alone. However, the Fimalac chairman and CEO continues to be somewhat evasive about whether or not this is his intention. Fimalac remains something of a mystery.

A FITCH CREDIT REPORT MIGHT OR MIGHT NOT delve into some other unusual aspects of Lacharrière's business. For starters, even as Fimalac's financial condition deteriorated last year, CEO Lacharrière, whose powerful friends include French President Jacques Chirac, chose to maintain the company's full dividend, paying out E35 million to shareholders; as it happens, Lacharrière has the biggest holding, 56 percent. In 2002, a year in which Fimalac sustained a E32 million loss, Lacharrière, whose net worth was recently estimated at E672 million, awarded himself a 9 percent raise, to E3.42 million. The French magazine Challenge ranks him as the country's second-highest-paid executive.

Fimalac's chief operating officer, Veronique Morali, 45, who lives with Lacharrière, received a profit-sharing payment of E8.6 million in 2002, the year that the company lost almost four times that much. Fimalac tersely described the payment, which did not have the prior approval of the company's compensation committee or its board, as part of "a profit-sharing scheme set up on the acquisition of Fitch" five years earlier that was based on an undisclosed mix of "revenue and profitability growth recorded by Fitch."

Morali, who declined to be interviewed for this article, was quoted in the business newspaper La Tribune last July as saying that the bonus was for "having played the role of an investment banker" in the Fitch acquisition. In an interview with Institutional Investor (see box at left), Lacharrière refuses to discuss the payment except to note that "French law was respected in every way."

A onetime Fimalac board member tells II that "the payment is clearly wrong and an abuse of shareholder trust, whatever the legal niceties." And portfolio manager Jean-Marie Eveillard, who oversees $9.2 billion for Arnhold and S. Bleichroeder Advisers in New York and has long had a stake in Fimalac, comments: "The big bonus given to Morali was something detrimental to minority shareholders. Lacharrière doesn't fully own the company, but he certainly acts as if he does." Not a peep of protest has been heard, however, from Fimalac's current board members, almost all of whom are friends or business associates of Lacharrière.

Such goings-on, curious even by cozy French corporate governance standards, gall many Fimalac shareholders. What truly riles some longtime investors in the company, though, is that despite Fimalac's rising stock price of late, the holding company remains grossly undervalued because of the undertow from Facom and Cassina. Bleichroeder's Eveillard calculates that Fitch would fetch E1.77 billion on the open market. Thus, says Eveillard, based on Fitch alone, the conglomerate is selling at a E600 million -- or 34 percent -- discount. That is what the French would call a bonne affaire -- a good deal. "If Fimalac were a normal company," declares the portfolio manager, "it's fair to say we would have snapped it up without hesitation."

Lacharrière dismisses the discount. "Whether they are justified or not, discounts are a permanent feature for diversified groups," he contends. "What interests shareholders the most are the price movements of Fimalac, not the discount." For much of the past 13 years, Lacharrière's holding company has traded at a 30 to 50 percent discount to its net asset value, despite the stock's having risen fourfold, or better than 11 percent a year on average.

Not even Eveillard can complain too loudly about Fimalac's stock price lately. In November, Bleichroeder took a E5 million stake in the company that as of late May had risen more than 20 percent. Nevertheless, Eveillard says, the investment might have been much larger if Lacharrière had been more forthcoming about his intentions. And even with the recent gains, Fimalac's stock price fell 13 percent between January 2001 and May 20, 2004; at the same time, Fitch's operating profits have risen about 25 percent.

SEATED BEHIND A CONFERENCE table in his sprawling office at Fimalac's headquarters, an elegant, neoclassical 18th-century mansion near the Musée d'Orsay on Paris's Left Bank, Lacharrière talked at length in late March about his company and the case for conglomerates, as well as a host of other issues that have kept Fimalac and its CEO at the center of controversy in France.

Might Fimalac shed Facom and Cassina to concentrate on Fitch? "For the moment, we are going to concentrate our efforts on the development of Fitch and on the turnaround of Facom, while keeping Cassina," says Lacharrière. The sale of the last two "will depend on the decisions that the board takes at the moment we decide to revise our strategy."

Last fall Fimalac launched a strategic review that chiefly focused on whether or not it should remain a conventional conglomerate like so many other French companies. When the corporate self-scrutiny wrapped up in March, the conclusion was that Fimalac should keep only those operations capable of contributing to cash flow. Businesses deemed incapable of doing so -- LBC and the metals operations -- were sold. The proceeds helped reduce Fimalac's pressing debt. About E978 million at the end of 2002, it has declined to E418 million, pared not only by the asset sales but also by the February 2003 rights issue and by cash flow from both Fitch and Facom.

Today Lacharrière contends that Fimalac is "pragmatic" and not necessarily wedded to the idea that the conglomerate structure will always be the best way to insure the long-term profitability for his enterprises. But he cautions that "an investor or analyst who thinks Fimalac would be better off without Facom or Cassina is making a mistake, since today those businesses are not worth their real price."

As for an even more sensitive issue -- his pay -- Lacharrière flatly refuses to address the subject. But he does strenuously defend his decision to maintain Fimalac's dividend last year, and he vows that the company will pay an unchanged dividend of E0.95 this year. Lacharrière insists that paying the full dividend in 2003 was about rewarding loyal shareholders, not about helping himself out of a bit of a financial bind, as some critics have charged. Company filings show that Lacharrière has pledged about half his stake in Fimalac to Banque Fédérative du Crédit Mutuel, Crédit Agricole Indosuez and Crédit Lyonnais as collateral for unspecified credits.

"People, whom I will not mention, who are intent on harming the reputation of Fimalac and myself have spread the rumor that the dividend was paid out because of my own need for cash," Lacharrière says. "It had absolutely nothing to do with that."

He explains that he had borrowed money from the banks to purchase E75 million of Fimalac's February 2003 rights issue. "I never needed the money," he says. "Borrowing it was a way to increase my leverage and my returns." He has undeniably done well with this gambit. The rights-issue shares were priced at E19, and Fimalac traded at E31.30 on May 20; on paper he has made more than E48 million on his investment (before deducting interest payments).

Although Lacharrière's vagueness about his intentions may not win him plaudits from good-governance types, it appears to fit his design. Explains Philippe Ezeghian, who follows midsize companies for Paris-based securities firm Exane, "Speaking minimally about their intentions suits Fimalac, since it provides them with wiggle room about what they will really do in the future, while their stock price is boosted by predictions of refocusing."

Patrick Jousseaume, a small-companies analyst at Société Générale Securities in Paris and a Fimalac bull, calculates that if the company got rid of the industrial assets and focused on Fitch, it would have a book value of E41 per share, or E1.53 billion, after subtracting E160 million or so in debt that would be left over after the disposal of Facom and Cassina. "Considering that rivals trade at a premium to net asset value, a restructuring at Fimalac could cause its share price to skyrocket," Jousseaume contends.

Some analysts are willing to bet on a thorough housecleaning at Fimalac that sees everything tossed out but Fitch. Lacharrière is "keen to zero in on financial services and sell his other assets," asserts Laurent Ducoin of CIC Securities in Paris. "There has clearly been a change in the old business philosophy of seeking safety in diversity, because they have been surprised by the strength of the ratings business and disappointed by everything else."

Lacharrière's decision in March 2003 to write down the remaining goodwill on Facom -- which puts a more realistic price on the company for a potential acquirer -- only intensified speculation that he intends to sell the toolmaker. The CEO, however, insists that the write-down was carried out in the interests of "prudence" and to accommodate tougher European Union accounting standards that will take effect in 2005.

"Fimalac remains an open and pragmatic company that is always receptive to exceptional ideas," declares Lacharrière in the kind of tantalizing but elliptical comment that so exasperates analysts and investors alike. Does that mean he would consider selling Facom and Cassina to concentrate on Fitch? "For the moment," he replies, carefully qualifying his words, "that is no more likely than Fimalac coming to rely exclusively on Facom."

Nonetheless, a deliberate deindustrialization scenario at Fimalac would have lots to recommend it. Fitch, for a start, could use some attention. The company's revenues are roughly $450 million, making it much smaller than rivals Moody's and S&P, whose sales are $1.25 billion and $1.13 billion, respectively. Moreover, Fitch's operating profit margin of 29 percent compares unfavorably with Moody's 50 percent and S&P's 40 percent.

Fitch, however, is the one steadily gaining market share, which helps to explain its more modest margins. Its sales shot up 27 percent in 2003, propelled by a surge in the number of companies borrowing as interest rates fell and also by explosive growth in structured finance deals, such as mortgage-backed securities. Fitch's revenues have grown 187 percent over the past five years. It has 1,500 employees, offices in 48 countries and rates all manner of fixed-income instruments in more than 100 countries, from German Pfandbriefe to Argentinean bodens to American collateralized debt obligations.

What's more, Fitch is better established than its two great competitors in one of the most promising rating frontiers: the emerging credit markets of the European Union's newest members. With headquarters in London and New York, the agency is also primed to exploit its leading position in asset-backed securities, the area expected to generate the greatest growth in ratings activity over the next decade. Many analysts predict that Fitch will grow 15 percent annually over the next three to five years, while Moody's and S&P grow at a pokier 10 to 12 percent rate.

"The advantage we have as a relatively small rating agency is a market to expand into at a time when people are looking for something other than just ratings from S&P and Moody's," contends Stephen Joynt, Fitch's New York­based president and CEO. "S&P and Moody's are likely to grow in line with the market, but we should be able to grow faster."

Fitch is by far Lacharrière's greatest business coup. Back in 1992 the entrepreneur acquired London-based rating outfit IBCA and merged it with a small French bond rating firm, Euronotation. A specialist at evaluating non-U.S. banks, IBCA was one of only five rating agencies -- and the only non-American one -- to be accredited by the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization, or NRSRO, a seal of approval critical to winning clients.

Lacharrière, however, was not satisfied with running a second-tier, essentially niche operation in a market dominated by S&P and Moody's. Reasoning that scale very much counted in the rating game, he set out to buy up and consolidate U.S. rating agencies. In October 1997 he paid $175 million for Fitch, then owned by Robert Van Kampen, founder of the Van Kampen mutual fund family (which now belongs to Morgan Stanley). Although small -- just 370 employees and E115 million in revenues -- Fitch stood out in the burgeoning field of structured finance. In April 2000, Lacharrière paid a stiff $528 million -- a roughly 27 percent premium -- to acquire Chicago-based Duff & Phelps Rating Co., gaining a major presence in Latin America.

"We certainly felt Duff & Phelps was fully priced," acknowledges Fitch CEO Joynt. But it was worth the cost, he asserts, because "it gave us much fuller geographic coverage and complemented IBCA's strength in financial institutions and Fitch's in structured finance, with a stronger operation rating corporate bonds."

In October 2000, Lacharrière picked up Thomson Financial BankWatch, a specialist at rating North American banks, from Thomson Corp. for $100 million plus a 3.4 percent stake in Fitch. The Fimalac CEO merged the three little NRSROs -- BankWatch, Duff & Phelps and Fitch -- into one package. "Lacharrière took two and two and got five by linking the NRSROs," says Mirco Bianchi, a corporate ratings adviser at UBS Warburg in London. "By combining the smaller players into Fitch, he created a global, cross-sectoral group with sufficient competitive bulk to be taken seriously."

What now alarms admirers of Fitch, however, is the prospect that Lacharrière, the confirmed conglomerateur, might see fit to capitalize on the rating agency's burgeoning revenues to treat it as a virtual ATM for bailing out the feckless Facom. Lacharrière discounts that possibility out of hand.

"The question of financing is not a problem," he contends. "We have strong cash flow at all of our subsidiaries." Lacharrière puts Facom's free cash flow in 2003 at E44 million. "If Facom continues to contribute that much, it will have paid its debt in under four years," he declares, predicting that cash flow will swell in the future.

Lacharrière's original Facom strategy was based on an astute business plan. He bought the toolmaker in 1999 for E890 million, financing the purchase largely with debt. The company, whose best-known product may be the Expert II screwdriver, was profitable but inefficient. Lacharrière's idea was to achieve economies of scale in Facom's fragmented European marketplace by acquiring a number of its rivals and consolidating brands and sales teams.

At first, this worked well. Lacharrière combined Beissbarth, Facom's auto-repair-equipment subsidiary, with three smaller European companies. The expanded Facom's operating profits increased 14 percent from 1999 to 2000, to almost E70 million, as sales rose by 13 percent, to E631.6 million. But then the economy staggered, and Facom's aerospace, automotive and construction industry clients cut expenditures.

At the same time, Facom's and Beissbarth's toolmakers found themselves challenged on quality and especially on cost by competitors in Asia and in Europe, where a wave of consolidation was under way among toolmakers. From 2000 to 2003, Facom's sales fell 10 percent, but its operating profits plummeted nearly 90 percent as the company was forced to sell tools at a loss to retain market share.

Lacharrière expresses confidence that Facom will return to robust profits under CEO Thierry Paternot, who took the job in December 2002 after having run German tobacco company Reemstsma. Paternot boosted Facom's free cash flow from operations last year to E34.5 million from negative E200,000 in 2002 by ruthlessly shedding brands, slicing inventory and curtailing production of 5,000 low-volume tools -- roughly one third of Facom's catalogue. "We consider ourselves the Mercedes of the tool world," says Paternot. "But we clearly have to cut costs even more." He expects to see a "significant" increase in operating profits this year and a further hike in 2005.

Originally part of Facom, furniture maker Cassina is, by comparison, a small worry for Lacharrière. The Milan-based company distributes its products through a chain of 700 franchised stores, mainly in Europe. Hit by the slow economy and competition from department stores with more marketing muscle, the company's sales eroded 8.8 percent last year, to E122.9 million, while operating profit fell 16.2 percent, to E16 million. Analysts speculate that Lacharrière will eventually sell Cassina to a luxury goods operation like LVMH Moët Hennessy Louis Vuitton or Gucci Group whose distribution power could spark a turnaround in its sales.

LACHARRIERE WAS BORN INTO A FAMILY OF MOD-est means but aristocratic lineage from the mountainous Ardèche region in southeastern France. His forebears include regional governors, generals and diplomats, and genealogy is one of his hobbies. One of two sons of an engineer who died when Lacharrière was 15, the future entrepreneur grew up in a small apartment on the grand Boulevard Haussmann in Paris. As a child, he spent his summers with his extended family of grandparents, aunts, uncles and cousins at the Lacharrières' slightly run-down ancestral manor house near Privas.

As an undergraduate at the University of Paris in the early 1960s, Lacharrière studied economics and turned his first profit by co-founding and selling a magazine for teenage girls, which suited his image as an homme galant. "I already had a taste for entrepreneurship, and I liked girls, so starting the magazine was a more interesting challenge than just preparing for entrance exams," he says with a twinkle in his eye. Lacharrière graduated from the ultra-elite Ecole Nationale d'Administration in 1970, 17th in his class of 250. But unlike most of his classmates, he shunned the prestigious senior civil service for the more lucrative world of finance. "My decision was a surprise to many people, but in my life I've often had to stand up to the shock of others," he says.

"Lacharrière's ambitions are fixed on gaining not only fortune but also influence and recognition among the business, artistic, scientific and political elite of Paris," says one person who has known him for years.

Under the sponsorship of the prestigious Revue des Deux Mondes, a highbrow magazine that he controls (which shares Fimalac's offices), Lacharrière hosts celebrated soirées at the Pavillion Gabriel, a stately 1841 manse just across from the Elysée Palace. Guests have ranged from central banker Jean-Claude Trichet to Paris Opera director Hugues Gall. Among his close friends, Lacharrière numbers Philippe Seguin, a prominent conservative parliamentary leader; Martine Aubry, a former Socialist employment and social affairs minister; Françoise Chandernagor, one of France's most popular historical novelists; physicist Georges Charpak, winner of the Nobel Prize and a Fimalac board member; Renault chief executive Louis Schweitzer; and Alain Minc, France's best-known management guru.

A passionate tennis player and a lover of good food, Lacharrière is also fond of French 20th-century abstract painting and antique sculpture. He has given the Louvre more than E1 million. Lacharrière's own office is adorned with works by 19th-century French impressionist Eugène Boudin and 20th-century fauvist Raoul Dufy.

"One of Lacharrière's distinguishing characteristics in both society and business is hyperactivity," confides a friend.

That trait was very much in evidence in his first job after ENA. As a young investment banker at La Banque de Suez et de l'Union des mines, the gregarious Lacharrière gained favor with a senior banker, Jack Francès, by demonstrating a flair for wooing important clients, such as cosmetics group L'Oreal and industrial gasses giant Air Liquide. On the side, in what would become a model for his future investments, Lacharrière and a partner, Dr. Jérôme Talamon, put up Ff20,000 ($3,888) each and borrowed an additional Ff10 million from Crédit Lyonnais to buy medical publisher Editions Masson in 1972.

Over the next two decades, Lacharrière and Talamon pursued acquisitions and built Masson into France's third-largest publisher by revenues. When they sold it to publishing house Groupe de la Cité for Ff377 million in 1994, Lacharrière and Talamon together reaped an estimated Ff225 million profit. Remarkably, for most of those years Lacharrière was working full time, first at Suez as a senior adviser on mergers and securities offerings and then from 1976 to 1991 as CFO and later COO as well of cosmetics maker L'Oreal. When L'Oreal's then-CEO, François Dalle, hired Lacharrière in the mid-1970s to bring order to the group's chaotic finances, Lacharrièrre had insisted that he be allowed to tend to his other businesses.

In 1989, while he was still at L'Oreal and running Masson on the side, Lacharrière profited handsomely as a major shareholder in a consortium that had been put together seven years before by Suez's Francès to protect insurer Groupe Victoire from nationalization under Socialist president François Mitterrand. The scheme called for dispersing assets among half a dozen interrelated holding companies to circumvent state control. Suez and other banks succumbed to nationalization, but Victoire remained independent. And two years after conservative prime minister Chirac reprivatized Suez in 1987, the bank bought Victoire, producing a windfall.

Bolstered by his share of the Ff3 billion profit from the Victoire sale -- an estimated Ff480 million -- Lacharrière left L'Oreal and in 1991 set up a private holding company called Financière Marc Ladreit de Lacharrière. That year he also hired Morali, and she has been at his side ever since, buying and selling a bewildering array of businesses. A 1986 ENA graduate with a master's in business law from the Ecole Supérieure de Commerce de Paris, Morali had spent the previous four years as an inspecteur des finances at the French Treasury.

In the early 1990s, Lacharrière, using the Victoire proceeds as his war chest, bought control of four public holding companies that had held stakes in Victoire as part of Francès' antinationalization scheme. The four: Société Alsacienne de Participations Industrielles, Comptoir Lyon Allemand-Louyot, Lille-Bonnières & Colombes and Centenaire Blanzy. Through intricate cross-holdings they controlled CLAL-MSX, one of France's biggest metals processors; Engelhard-CLAL, a Paris-based metals refiner that was a joint venture with U.S.-based Engelhard Corp.; Ruggieri, a French fireworks producer; LB Chimie (now LBC), the No. 2 chemicals storage company in the world; polling and market research firm Sofres; French real estate company Sefimeg; and business newspaper groups Valmonde et Cie. and Journal des Finances.

Lacharrière formed Fimalac in June 1996 by using share swaps to merge Comptoir Lyon and Alsacienne, in which he had stakes of somewhat more than 50 percent, into Lille-Bonnières, in which he wielded 90 percent control. Lille-Bonnières was then rechristened Fimalac; this simplified -- if not all that much -- the structure of Lacharrière's empire. (He held onto Financière Marc Ladreit Lacharrière, which today remains one of the vehicles through which he controls Fimalac.)

In October 1997, barely a year after forming Fimalac, Lacharrière acquired Fitch for $175 million. The deal was, naturally, not as simple as that sounds. Lacharrière paid for Fitch principally by selling off the assets of his fourth holding company, Centenaire Blanzy, including the publisher Valmonde. The Centenaire Blanzy shell then absorbed Fitch and in turn was folded into Fimalac in 1998.

Some investors complained that Lacharrière forced them to accept disadvantageous ratios on the swap of Comptoir Lyon and Alsacienne shares into newly coined Fimalac shares, undervaluing their assets. Bleichroeder's Eveillard, whose fund owned 3 percent of Comptoir Lyon at the time Fimalac was created, protested that "150,000 American shareholders [his institution's clients] were deceived by Mr. Lacharrière." No lawsuits were filed, however. The lesson, Eveillard says today, is that "the interests of a controlling owner like Lacharrière do not necessarily dovetail with those of regular investors." Nevertheless, as a follower of undervalued stocks, he sees potential in Fimalac and remains a modest investor.

Lacharrière says he will address the question of whether the disputed exchange ratios were fair only if he receives a letter from investors spelling out in detail why the valuations were incorrect. "People who complain and don't take follow-up action are not really that upset," he tells II.

Where does Fimalac go from here?

One scenario popular with investors would have Lacharrière unload a slimmed-down Facom to, say, a U.S. tool company, such as Stanley Works. By writing down the value of the company in March 2003, the CEO -- whether that was his purpose or not -- cleared the way for Facom's sale.

"I built Fimalac purely for the pleasure of creating a worthwhile business," Lacharrière says, "not so that a dynasty of little Lacharrières could run it in never-ending succession." Few investors would dispute that he has built a worthwhile business. Many might also agree that one Lacharrière is enough.

Lacharrière: 'Anything but ambiguous'

Fimalac is a true French conglomerate, with a potpourri of holdings over the years -- from newspaper publishing to metals processing to securities rating -- that might better be described as eclectic than merely diversified. The Paris-based company took its idiosyncratic form from founder and controlling shareholder Marc Ladreit de Lacharrière, a former investment banker and a member of Paris's beau monde who has a restless entrepreneurial streak. Now his conglomerateur's instincts are being put to the test. Fimalac, having shed a number of businesses, consists of a pair of lackluster industrial enterprises, toolmaker Facom and furniture manufacturer and retailer Cassina, and Fitch Ratings, the thriving No. 3 global securities rating agency. But the company remains hugely undervalued. Investors would be delighted if Lacharrière would dump Facom and Cassina and focus solely on Fitch, which he built up. The Fimalac chairman and CEO recently discussed his intentions with Staff Writer David Lanchner at his elegant office near the Musée d'Orsay.

Institutional Investor: You recently completed a strategic review. What was the result?

Lacharrière: Before our review of strategy, which began in September, we would develop a business services group by acquiring operations with a domestic business, Europeanizing them and after that turning them into world leaders in their sectors. This implied giving the companies money so that they could develop fairly rapidly on a global basis. The question of cash flow was not a priority. Now we are concentrating only on companies that produce cash flow. This is an important evolution that represents fundamental change. The result was the sale of [chemicals storage company] LBC, which would have required capital for future development.

Do you still believe that it's best to build Fimalac around several businesses?

The development model was based on several businesses. Our current strategy means that we will not create a third business pillar to substitute for LBC. From three core sectors we go to two [Fitch and Facom]. These will be the development priority.

Which will receive the most emphasis?

In the past three years, one business developed much quicker than the other enterprises -- Fitch. So the business that has the greater development priority is Fitch, of course. It has broader development possibilities than tools and will require fewer funds. Third, it throws off a very important cash flow that can be used to self-finance its development.

Might Fimalac end up with just Fitch?

For the moment, that is no more likely than Fimalac coming to rely exclusively on Facom. We will keep both businesses. It's in investors' interest that we turn around Facom. The company will have a lot more value once we do that than if we were to spin it off today. My hope is to get it back to its old value with a very aggressive strategy and a reduction of costs. [Facom CEO] Thierry Paternot intends to arrive at an operating margin of 8 to 10 percent in years to come.

With the benefit of hindsight, was it a mistake to buy Facom?

I would say it was not the best investment choice that Fimalac made, on a short-term basis. Let the future settle the debate over whether it was a good choice or not.

What about your furniture maker, Cassina?

For the moment, it is best to keep Cassina. It has little in common with our other holdings. But we think its value can only go up over time. Why sell an activity like that when we don't need money? It is a business that is worth about E150 million [$181.5 million]. At 4 percent we can make E6 million a year if we sell it. Yet in operating profit it brings us E18 million to E20 million a year. So selling it has very little interest for us.

Some investors complain that your strategy seems ambiguous.

We don't have the same notion of ambiguity. The message of Fimalac is anything but ambiguous. It is very clear we had three companies. We decided first of all to concentrate only on activities that produced cash flow for us. Is that ambiguous? For the moment, we are going to concentrate our efforts on the development of Fitch and on the turnaround of Facom, while keeping Cassina, and as a result we will not have a third pillar. Third, as a priority for the coming years, our strategy is to concentrate on two legs and to conserve a business with enormous cachet and capital gains potential called Cassina. On those points we are clear, to the point and precise. Well, I am being very Anglo-Saxon for once, very factual, without indulging in theorizing about the future.

Fimalac shares trade at a discount to net asset value. Will that ever change?

The discount for diversified groups is a permanent thing. You have it in all diversified groups in France -- at Lagardere, Bouygues etc., etc. If I delisted Fimalac from the French stock exchange and listed it in New York, there would no longer be a discount. In the U.S. a company like General Electric does not have a discount. But if a shareholder is honest when he buys the shares, he can't say afterwards, "I don't understand why there is a discount!" The reality is, he bought his shares with a discount. The problem is therefore relative discount. It is all about whether the discount widens. The discount has held in a fairly narrow range for Fimalac throughout its history. What interests shareholders the most are price movements, not the discount. Fimalac's return [since its creation in 1991] is three times greater than the CAC [40 index].

Does Fimalac have a debt problem, as some have speculated?

It's with huge joy that I can demonstrate today that the bad guys, the bitter and those with less-than-good intentions who spread rumors about our debt were wrong. Fimalac's debt today is only E660 million. We had cash flow in 2003 of E330 million [including funds raised through asset sales and a rights issue]. That is the strongest we've ever had, and all subsidiaries contributed. [Even] Facom contributed E44 million. If Facom continues to contribute that amount, it will have paid its debt in less than four years and will not need the money of Fitch. And by June we will have received E243 million from selling LBC, reducing our debt to about E420 million. If we generate the same cash flow from operations globally that we did last year -- E160 million -- we will have only E260 million in debt for Fimalac [at end of 2004]. So financing Fimalac is not a problem. On the contrary, we are in a position where we can do acquisitions if opportunities arise for Fitch.

What might those opportunities be?

We can't buy our competitors. On the other hand, we can buy annex activities connected to ratings. Or we could buy rating agencies outside the U.S. We can expand the scope of activities on both the operating and geographic levels.