Carlyle court battle ends in triump

01 September 2005

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Following a court decision in Paris, The Carlyle Group has taken control of portfolio company Otor, the French paper products manufacturer, after legal battles with the firmÂ’s founders going back more than three years. Carlyle acquired a 20% stake in Otor for EUR 45m 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 companyÂ’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 removed the firmÂ’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 CrÃ©dit Lyonnais to court in New York, claiming a conflict of interest arising from CrÃ©dit Lyonnais being an investor in one of CarlyleÂ’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 CarlyleÂ’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% stake in Otor, with the remaining shares expected to be acquired in the autumn.