Breton Pulleys and the Illusion of Control

Part 1 of a Bridge Connect Series: Breton Pulleys and the Illusion of Control: How Circular Ownership Distorts Corporate Reality

1 The Corporate Perpetual-Motion Machine

In May 2023, analysts re-examining France’s Bolloré Group noticed something odd. On paper, public investors appeared to own most of the business. In practice, the founding family controlled nearly all of it. The explanation was neither a trust nor a pyramid of shell companies in the classic sense. It was a loop — a cleverly designed “Breton Pulley” that let control re-enter the system like a rope through a wheel, lifting ownership weight with minimal capital input.

This pattern — first identified by short-seller Carson Block (Muddy Waters Research) — has since become a byword for opaque European group structures. It illustrates how boards and investors can misjudge who actually owns and controls a company, and why governance risk does not always appear on the balance sheet.

2 Origin of the Term

“Breton Pulley” is not found in accounting manuals. It is a nickname drawn from Vincent Bolloré’s Breton heritage and the pulley’s mechanical analogy: one unit of force pulls a greater weight through loops of rope. In finance, those loops are cross-holdings. Each company in the chain owns part of the next — and the last owns part of the first — creating an illusory amplifier of control.

3 How a Breton Pulley Works

Let’s simplify. Imagine three entities: A, B, and C.

    [A]──owns──▶51% of [B]
    [B]──owns──▶51% of [C]
    [C]──owns──▶51% of [A]

Each company appears to control another, but the loop means each is also partly controlled by its own subsidiary. No fresh capital is added to the system, yet paper control is multiplied. The founder’s stake in one node cascades through the circle, producing the illusion of majority ownership across the group.

In mechanical terms, the rope never leaves the wheel. Pull hard enough on one segment, and the entire loop rises.

4 Case Study: Bolloré Group

Bolloré S.A. is one of France’s oldest industrial groups, with interests in media, logistics, and electric mobility. By the 2020s it also held significant stakes in Vivendi and Universal Music. Analysts trying to calculate the public’s share of the group found the numbers did not add up.

At the centre sits Compagnie de l’Odet, the family holding vehicle, which owns Bolloré S.A. But Bolloré S.A. in turn owns a large stake back in Odet. On a straight line chart, it appears that public shareholders own most of Bolloré S.A. On a look-through basis, they own barely half.

A 2018 Muddy Waters report estimated that because of these loops, the Bolloré family controlled more than 64 percent of the group’s voting rights while investing only a fraction of that capital. Subsequent tenders and restructurings have simplified parts of the chain, but the underlying principle remains instructive.

5 Why It Matters

1. Control Illusion – Boards may believe outside investors hold a majority when in fact control loops back to founders.

2. Valuation Distortion – Market capitalisation can be misleading because the effective free float is smaller than it appears.

3. Leverage Without Debt – The structure acts as implicit financial leverage; returns on the founder’s capital are magnified without visible borrowing.

4. Governance Opacity – Circular voting rights blur lines of accountability; board decisions can be influenced by entities that are effectively controlled by the same person.

For a board chair or investor, the key question is simple: Who actually has economic skin in the game?

6 Historical Precedents

Circular ownership is not new. In the 1990s, Korean chaebols used similar structures to preserve family control. Japanese keiretsu networks maintained cross-shareholdings between banks and manufacturers to stabilise ownership and block hostile takeovers. In Italy and Spain, industrial families built multi-tiered pyramids with small stakes at the top and enormous control below.

What makes the Breton Pulley distinctive is the loop. Traditional pyramids flow downward; the Pulley flows back up, creating a self-reinforcing ownership circle.

7 The Financial Illusion

A Breton Pulley can boost return on equity without increasing profits. Suppose the founder owns 25 percent of A, which owns 51 percent of B, which owns 51 percent of C, which owns 51 percent of A. Through multiplication of ownership fractions, the founder controls roughly 66 percent of the system economically while contributing only a quarter of the capital.

Cash flows can also be cycled through dividends and inter-company loans, making each layer look profitable even when the underlying profit is the same €1 recycled three times. Analysts call this “mirror earnings.”

8 Accounting and Disclosure Challenges

Under IFRS 10, entities must consolidate subsidiaries they control. But when control is shared in a loop, each entity can claim to be both parent and subsidiary. Consolidation decisions then depend on interpretation of “de facto control” — a grey area that skilled structurers exploit.

Disclosure rules require reporting of related-party holdings, yet circular ownership often falls between definitions of associate and subsidiary. Minority investors therefore struggle to calculate true look-through NAV.

9 Why Boards Overlook It

• Complex Heritage: Many groups evolved organically through decades of mergers and spin-offs. Boards inherit the loops rather than design them.

• Apparent Compliance: Each entity is independently audited and meets disclosure rules in isolation. No one asks how the pieces fit together.

• Control Comfort: Founders and families believe retaining control protects long-term vision. It often does — until liquidity or succession pressures arise.

• Investor Inertia: Analysts rarely challenge structures that appear stable and profitable. The discount to NAV is written off as a “conglomerate discount.”

10 The Governance Risk

A Breton Pulley blurs fiduciary responsibility. Directors sitting on Company A may also serve on B and C. Each entity approves dividends that feed back into itself. If one layer encounters financial distress, the entire system is exposed — yet no single board has a clear view of aggregate risk.

For institutional investors, this is a governance minefield. Voting rights are inflated relative to economic interest; independent directors may be independent in name only.

“A Breton Pulley doesn’t just move capital — it shifts truth.”

11 Regulatory Responses

• France: The Autorité des Marchés Financiers (AMF) has increased disclosure requirements for related entities, but loops persist through private holdings.

• EU: The 2021 Shareholder Rights Directive II pushes for greater beneficial ownership clarity, yet cross-holdings below disclosure thresholds remain possible.

• OECD: Recent guidance on corporate transparency urges look-through reporting of inter-connected entities.

• Auditors: Global audit firms increasingly use graph analytics to map ownership networks — a practice Bridge Connect encourages boards to adopt internally.

12 Why Bridge Connect Cares

In telecoms, infrastructure, and technology sectors, ownership opacity is not confined to continental conglomerates. Joint ventures, special-purpose vehicles, and investment platforms frequently mask who really controls spectrum, subsea cables, or data centres. When capital structures become self-referential, so does risk.

Bridge Connect advises boards and investors to ask three questions in every structure review:

1. Where does cash actually enter and leave the system?

2. Who can appoint or remove management in each layer?

3. If one entity fails, which others are legally on the hook?

Understanding those answers is the difference between control and illusion.

13 Identifying a Breton Pulley in Practice

Signs that a group may contain a pulley-like loop:

Indicator	Description
Cross-ownership > 20 %	Two or more entities own significant stakes in each other.
Non-linear control	Parent A consolidates B, but B also records A as an associate.
Voting discrepancy	Founder control % ≫ economic interest %.
High related-party dividends	Cash recirculates within the same group each year.
Opaque shareholder register	Major holders listed as corporate entities with identical directors.

Bridge Connect uses network mapping tools to visualise such structures. Even a basic graph of shareholdings can reveal feedback loops that auditors miss.

14 Implications for Valuation and Investment

For investors, the discount to NAV is not a mystery but a risk premium for opacity. Disentangling ownership loops can unlock hidden value — as seen when Bolloré simplified its structure in 2022 and the market re-rated the stock by nearly 15 percent.

For founders, the lesson is that complexity protects control only until it destroys liquidity. For regulators, transparency reforms must focus on net control, not headline percentages.

15 Conclusion: Seeing the Ropes

The Breton Pulley is a reminder that corporate governance is not just about ethics but about physics. Every structure has forces and counterforces; every loop creates tension. The question for boards and investors is whether those forces are lifting value — or quietly twisting it into a knot.

“If your ownership diagram doesn’t end somewhere, your control might not begin anywhere.”