In an effort to allow takeover bids to be freely negotiated on the common market while affording European businesses better legal protection, Directive 2004/25/EC of 21 April 2004 set minimum guidelines for conducting takeovers within the Member States. The directive's building blocks are transparency, prompt disclosure of bid procedures, protection of all interests of the parties at issue and designation of the national authorities responsible for applying the rules set forth in the directive.
In a bit of scheduling serendipity, recently the French government and the Takeover Panel simultaneously issued new proposals for their takeover bid regimes. Initially, Directive 2004/25/EC was implemented in France as Loi 2006-07 du 31 Mars 2006 relative aux OPA (law no. 2006-07 dated March 31, 2006 on takeover bids), which acknowledged the AMF's quasi-automatic jurisdiction as independent arbitrator; the major outlines of the directive can be found in the new provisions of the AMF's general regulation, sanctioned September 18, 2006. Around that same time, the United Kingdom was implementing the directive through its 2006 Takeover Directive Regulations and the amendments made to the Takeover Code. Nearly five years later, the time has come to take stock of the directive's implementation in each nation's legislation and of the amendments likely to be made thereto.
For France, the directive's timing could not have been more appropriate – the rumour that PepsiCo was considering a hostile takeover of Danone combined with the offers being made by Mittal for Arcelor and Enel for Suez created a difficult climate for takeover bids. Though PepsiCo denied this rumour in a subsequent announcement to the AMF on July 24, the uproar that raged until that date caused shares to skyrocket. Three days later, in a display of "economic patriotism," Jacques Chirac implemented strategic measures to control foreign investment. The United Kingdom, on the other hand, waited until the 2010 controversy over Kraft's takeover of Cadbury to amend its Takeover Code, deemed far too favourable to those initiating hostile takeovers. Some of the announced changes to English law already had French equivalents, but the strength of the United Kingdom's intent to protect offeree companies can be seen in the fact that some of the measures contemplated by the Takeover Panel go even further than what is provided for in French law.
To keep "virtual offers" from being extended indefinitely, French law stipulates that where "[TRANSLATION] there is reasonable grounds" (at the AMF's discretion) to believe that a person is preparing a takeover bid, that person must state their intentions (dubbed the "Danone amendment"). The AMF regulation adds that where such intentions are stated, whether in the form of a takeover bid or, conversely, a declaration that no bid will be made, that person is bound to honour the undertaking for six months. In the first case, it will have to follow the bid procedure based on the timetable implemented by the AMF; in the second case, it will be prohibited from filing an offer for six months. Thierry Breton, Minister of the Economy, insisted that the provision is innovative and "[TRANSLATION] important for the transparency of takeover bids" while being "fair to the offeree company, which must not be destabilized."
The amendments to the Takeover Code go one step further, requiring that potential offerors be named at the very earliest stage of the procedure marking the beginning of the offer period. Any potential offeror that has been identified then automatically has to "put up or shut up" (either present a firm offer or remain silent) and must specify its intentions in respect of the offeree company within 28 days.
What is more, the Takeover Panel's proposals seek to strengthen the position of offeree companies by prohibiting the use of transaction protection measures, which often protect the offeror's position.
While France may not seem to be formally condemning such measures in its legislation, it does provide for a certain number of anti-takeover measures that protect offeree companies against takeover bids instituted by foreign businesses, a definite reflection of France's "economic patriotism." One measure the law provides is that defences implemented against takeover bids must be approved by a general meeting of shareholders, a measure that is now the very core of the anti-takeover regime. This legislation even implements the reciprocity clause stipulating that all provisions requiring that defence measures receive the authorisation of the general meeting of shareholders will not apply if the company has received a takeover bid from one or more entities that have not applied these same provisions or equivalent measures. That general meetings are now empowered to issue warrants is considered to be one of this legislation's major contributions. Though many doubt the efficaciousness of this measure (referred to by some as a "poison pill"), it does encourage negotiations between offeree companies and offerors to improve a bid's features.
The Takeover Panel is also proposing to enhance transparency and improve the quality of disclosures. The takeover legislation contains provisions to improve information to shareholders and employees by creating an exhaustive list of information that is required in the report of the offeree company's board of directors. The AMF's general regulation simplifies the contents of takeover bid circulars, which now only pertains to the offer and must be published as soon as the draft offer is filed with the AMF. What is more, Instruction AMF 2006-07 du 25 juillet 2006 (AMF instruction no. 2006-07 dated July 25, 2006) details the information that must be provided to the AMF, the contents of the takeover bid circular, as well as the contents of the offeree board circular.
Under the directive's provisions on information to employees, the takeover law indicates that the offeror's takeover bid must be sent not only to the works council of the offeree company, but to that of its own company. The works council will then be able to hear the offeror and decide whether or not the offer is amicable. Critics believe that these utopian measures benefit management teams more than employees.
The amendments to the Takeover Code run deeper and try to better recognize the interests of the offeree company's employees. Offerors are therefore now generally required to honour their statements regarding employment and the location of the offeree company's activities for a period of 12 months following the date on which the offer becomes unconditional.
Unlike the United Kingdom, which chose to amend its Takeover Code that was deemed harsh on offeree companies, France does not seem to have made any significant changes to its takeover regime since the 2004 directive. However, its government is keeping a close eye on potential amendments that could be made, if the consolidation of Règlement AMF du 31 janvier 2011(AMF regulation dated January 31, 2011) following changes that were introduced by the November 2010 banking and financial legislation (BFL) is any indication.
Indeed, the changes that the BFL brought to takeover law led to the adaptation of the AMF regulation. These amendments, which were subjected to an AMF public consultation, now provide that the threshold triggering the obligation to file a draft takeover bid (as well as the terms and conditions thereof, such as the threshold calculation method, exemptions and the "grandfather clause" that applies to shareholders holding between 30% and one third as at January 1, 2010) is now 30% of the capital and voting rights instead of one third. In an effort to prevent "creeping" takeovers (Wendel - Saint Gobain, Porsche - Volkswagen), the AMF will likely allow derogations from this 30% threshold, as it did in the Hermès-LVMH takeover. To protect capital against the rise of LVMH (which held 20% of the group), Hermès' family shareholders created a holding of more than half of its capital. Given the circumstances, the AMF authorised the derogation as a reclassification exception.
Such changes to the AMF's general regulation naturally had an impact on the AMF's 2006-07 instruction, which was correspondingly amended last June 24 to include new technical provisions.
The new directive is so efficient because it allows nations to provide better protection to offeree companies with a very high degree of harmony throughout Europe. And yet, it has managed to do this while remaining flexible enough to allow the Member States to address their respective concerns when implementing the directive, especially France's concern over foreign investors.