The law aiming at recapturing the real economy (the so-called "Florange" law),adopted by the French Parliament on 24 February 2014, has been enacted on 29 March 2014 and officially published on 1 April 2014.
This law includes measures applicable to listed companies which amend in particular certain legal and regulatory provisions relating to takeovers in France.
1. Measures which are already in force
- Introduction of an automatic cancellation threshold of 50% of the share capital or voting rights
An automatic cancellation threshold has been introduced for any voluntary or mandatory takeover, below which the bidder will not be entitled to keep the securities tendered to the offer.
If a mandatory takeover fails for non-crossing the cancellation threshold, the sanction, as long as the interest held by the bidder does not reach 50%, will be the deprivation of voting rights on the pre-mandatory takeover portion of ownership in excess of (i) the 30% threshold (in case of crossing of the 30% threshold) or (ii) the number of shares initially held, increased by 1% (in case of "acquisition speeding" between the 30% and 50% thresholds), coupled with an obligation for the bidder to launch a mandatory takeover as soon as it acquires an additional share in the target.
The General Regulation of the French Financial Market Authority will have to determine the conditions and cases where this new cancellation threshold shall apply.
- Generalisation of the double voting rights in listed companies
In listed companies where the by-laws did not already provide for the granting of double voting rights, double voting rights will be automatically allocated to any shareholders holding their shares in registered form during two years from the law's enactment date (except otherwise provided for in the by-laws amended by the shareholders to disapply such new rule after 29 March 2014).
After the law's enactment date, provisions contained in the by-laws of listed companies already granting double voting rights remain in force.
A new case of exemption to the obligation to launch a mandatory takeover has been introduced for the benefit of any shareholder holding more than 30% of the share capital or voting rights of the company on the law's enactment date, who would then reduce such interest to below the 30% threshold (in share capital and voting rights), and who would subsequently cross the 30% voting rights threshold upwards due to the automatic allocation of double voting rights. This exemption will only apply if the percentage of voting rights held by the shareholder after the second threshold crossing is lower than the percentage of voting rights it held on the law's enactment date.
In limited liability companies (sociétés anonymes) for which the law provides for a minimum shareholding by the French State of 50% of the capital, this obligation will be considered as met if the threshold is achieved in capital or in voting rights.
For non-listed limited liability companies (sociétés anonymes), the allocation of double voting rights remains optional and must therefore be provided for in the by-laws.
In all companies (whether listed or not), it is no longer possible to restrict the granting of double voting rights to European nationals.
- Increase of the threshold for the allocation of free shares to employees
The increase of the threshold for the allocation of free shares will allow employees to hold, by this means, up to 30% of the share capital of their company (versus 10% today), provided however that such free shares are allocated for free to all the employees (and not only to the managers). In such a case, the difference between the number of shares allocated to each employee will have to be inferior to a ratio of 1 to 5.
2. Measures which will come into force as from 1 July 2014
- Suppression of the principle of board neutrality in a takeover
The new law constitutes a radical change in France's position compared to that adopted in 2006 when the Takeover Directive was implemented. France had then chosen to apply the board neutrality rule, subject to the reciprocity rule.
The new law reverses the current French regulatory framework by making the board neutrality rule the exception. Accordingly, the board will be entitled to take all immediate protection measures, within the limit of the company's corporate interest. By exception to this new principle of board freedom, it will however be possible to provide in the by-laws for a prior authorisation from the shareholders (i.e. a voluntary return to the board neutrality rule) either for any takeover, or only where the bidder does not itself apply the board neutrality rule (i.e. a voluntary reinstatement of the reciprocity rule).
Delegations of powers previously granted by the general meeting of shareholders to the board are no longer suspended during the takeover period.
- Increased role for target's works council
The new law requires the issuance of an opinion by the works council at the end of an "ad hoc" information and consultation procedure (whether the takeover is friendly or hostile). This opinion shall be issued at the latest within one month from the filing of the draft offer (failing which the works council will be deemed to have been consulted). However, the elected members of the works council will be entitled to request to the President of the first instance court (Tribunal de Grande Instance) (who will have to rule in summary proceedings, within 8 days, it being specified that his decision may only be appealed directly to the French Supreme Court), a prorogation of such one-month period in case of specific difficulties in obtaining the necessary information to be in a position to issue an opinion, except if the problem is caused by the deliberate refusal of the target company to disclose the requested information (i.e. in case of delaying tactics by the management of the target company in the context of a hostile takeover). This opinion will then be sent to the target's board before it rules on the takeover.
In the context of this procedure, the works council will be entitled not only to hear the bidder but also to request the appointment of an expert who will have to issue a report assessing the bidder’s intentions on industrial and financial policy and strategic plans for the target, within three weeks from the filing of the draft offer.
The works council of the target company may be informed and consulted immediately after the announcement of a friendly takeover, without waiting for the formal filing of the takeover, if the bidder so requests (a second information and consultation procedure will have to be held after the filing only if the information presented to the works council has materially changed between the announcement and the filing, which would render the works council's initial opinion void).
The opinion of the works council and the report of the expert will be inserted in the offer document in response prepared by the target company.
Finally, the bidder having acquired the control of the target will be obliged to report to the works council, after six months, one year and two years, on the way it implemented its commitments and declarations of intent provided for in the offer document.
This new process will not apply to "technical" takeovers that do not trigger any material changes to the structure of the share capital, i.e., share buy-back offers launched by the target and simplified takeover bids issued by shareholders already holding more than 50% of the target's share capital or voting rights.
- Reduction of the quantum of "acquisition speeding" from 2% to 1% of the share capital per year
According to the current "acquisition speeding" system, a shareholder holding between 30% and 50% of the share capital or voting rights of a listed company is entitled to increase its shareholding by up to 2% of the share capital per year without being under the obligation to launch a mandatory takeover. The new law reduces such a tolerance to 1% per year.
3. Another important reform that does not relate to listed companies in France: the obligation to look for a buyer in case of planned closure of an establishment
This new obligation applies only to groups of companies whose number of employees worldwide is over 1,000 and which plan to close an establishment which would lead to a collective redundancy plan.
In such a case, the company will be obliged to convene the works council and inform the administrative authority and then examine the offers it receives in order to prepare a reasoned reply.
The works council will not only be entitled to issue an opinion on the proposed bidders but also to actively participate to the research of a buyer, with the assistance of an expert paid by the company, if need be.
If, at the expiry of a three-month period from the initial works council information meeting, no offer has been made by a potential buyer, or if the company has not accepted the offers received, the company shall make a report for the attention of the works council and the administrative authority, which summarises the actions implemented for the research of a potential buyer, the offers received and the reasons why the sale of the establishment was rejected.
If the works council considers that the company has not demonstrated sufficient due diligence in researching a buyer or has rejected an offer that could be regarded as serious, it will be entitled, within 7 days from the consultation meeting, to request the competent commercial court to verify that all the company's new obligations regarding the research of a buyer have been complied with. If the court rules, within a 14-day period, that these obligations have not been complied with, the competent public entities will be entitled to order, within one year from the judgment, the company to reimburse all or part of the financial aids it has received for the concerned establishment for the past two years preceding the judgment.