Shareholder activist strategiesStrategies
What common strategies do activist shareholders use to pursue their objectives?
At the highest level of abstraction, the classic activist intervention involves acquiring a minority stake in the target company by way of an economic interest (in the form of a direct acquisition of shares, through derivative instruments or even the acquisition of debt securities or other credit exposure) and attempting to pressure the board and management (including through the use of shareholder democracy) to seek to influence the company’s stock price.
Within this framework, common activist strategies vary considerably depending on circumstances, but may include:
- seeking to add items to the agenda of a shareholders’ meeting or propose new resolutions (Wyser-Pratte regarding Lagardère, TCI in Safran-Zodiac);
- criticising announced M&A transactions (TCI in Safran-Zodiac, Amber Capital as regards Gameloft SE);
- seeking board seats (Cevian in relation to Rexel, CIAM as regards Alès Group, Pardus Capital Management regarding Valeo, Pardus and Centaurus Capital in relation to Atos Origin, Financière de l’Echiquier and Sterling Strategic Value as regards Latécoère, Amber Capital as regards Lagardère, SFAM as regards FNAC Darty);
- seeking a court-appointed independent expert (Elliott in its countersuit against XPO);
- ‘no’ campaigns on executive compensation (the Hollande administration in relation to Alstom, Renault and Safran (resulting in ‘no’ votes in 2016 against the compensation of Carlos Ghosn and Patrick Kron, the CEOs of Renault and Alstom respectively));
- blocking a squeeze out (Elliott in both APRR and XPO Logistics Europe);
- orchestrating a public relations campaign, including letter-writing (including lobbying individual board members or relevant regulators), press interviews and lobbying of proxy advisers; and
- in relatively rare cases, threatening (TCI in Safran-Zodiac) or actually initiating litigation (CIAM in Euro Disney, CIAM against Altice).
From a purely financial perspective, activists have had increasing recourse to equity collars in connection with their stakes. This structure is adopted as a matter of stake-building (to avoid disruption in the stock price) - however, in the longer term, this tool may also be used to limit the activist’s financial exposure to the target, disaligning the activist’s economic interests from those of other shareholders (eg, as has been reported regarding Elliott in its Telecom Italia investment).Processes and guidelines
What are the general processes and guidelines for shareholders’ proposals?
Shareholders that meet the applicable minimum shareholding threshold in a listed entity in France, as well as qualifying minority shareholder associations, may seek to add items for discussion to the agenda for any shareholder meeting or propose additional draft resolutions to be included in ‘proxy’ materials distributed to shareholders. The applicable minimum threshold depends on the share capital of the issuer and is calculated on a sliding scale. It cannot be more than 5 per cent; in the very largest companies, it may approach 0.50 per cent.
External shareholder resolutions may include, for example, major strategic or financial initiatives (such as an exceptional dividend, a share buyback or a spin-off), material governance changes (including a separation of the CEO and chairman roles or a resolution for a special committee of independent directors to be formed to undertake a strategic review of management’s performance, compensation or succession planning) or various other disruptive proposals (eg, the transformation of the corporate form into a takeover-friendly structure).
However, in accordance with the fundamental principle under French law regarding the proper competence of the respective decision-making organs of the corporation, some boards have resisted the proposal to include an item that does not fall within the competence of the shareholders’ meeting (eg, a change of strategic direction).
May shareholders nominate directors for election to the board and use the company’s proxy or shareholder circular infrastructure, at the company’s expense, to do so?
Yes. In France, upon proposal of any shareholder, and irrespective of a director’s term, any director may be removed and replaced at any shareholder meeting by a simple majority vote of the shareholders even if the matter is not on the meeting agenda. In addition, under the shareholder proposal right discussed above, a draft resolution proposing the removal and replacement of any director may be included in the company’s proxy materials circulated to shareholders in advance of a shareholder meeting.
May shareholders call a special shareholders’ meeting? What are the requirements? May shareholders act by written consent in lieu of a meeting?
Shareholders holding 5 per cent as well as certain minority shareholder associations may request the president of the commercial court to convene a shareholder meeting in the event that the company has failed to call the relevant meeting following a specific request. The court assesses whether the request is for legitimate purposes and in the corporate interest of the company, and not solely to satisfy the plaintiff’s personal interests. If the request is granted, the court sets the agenda and appoints an agent to convene the meeting.
Shareholders of French listed companies are not permitted to act by written consent in lieu of a meeting.Litigation
What are the main types of litigation shareholders in your jurisdiction may initiate against corporations and directors? May shareholders bring derivative actions on behalf of the corporation or class actions on behalf of all shareholders? Are there methods of obtaining access to company information?
While shareholder litigation is relatively unusual in France, shareholders recourse is available against corporations and directors. For instance, shareholder litigation can be commenced on the merits by way of derivative action (action sociale ut singuli). Derivative suits may not be pursued as a class action, as this procedure is not available under French law with respect to shareholder claims. The cost of the derivative suit is borne entirely by the shareholder, while any recovery is allocated to the company. A personal cause of action is also available; however, the plaintiff must demonstrate that the relevant loss is personal to him or her, and distinct from any loss incurred by the company or the other shareholders.
Other litigation, such as based on an abuse by majority shareholders, criticism of insider transactions, seeking the liability of managers or seeking redress for procedural failings, may also be available to activists.
There are also a variety of criminal actions available in France in connection with corporate conduct; however, such actions depend on the relevant authority exercising its prosecutorial discretion to elect to actively pursue the matter.
Shareholders have certain general information rights that generally only concern public documents and information that must in any event be publicly communicated. An additional and much broader right available generally under French civil procedure also permits ‘any interested party’ (including a minority shareholder) to seek, on an ex parte basis, the seizure of evidence that may be necessary for contemplated litigation.