While the Canadian Securities Administrators’ (CSA) proposed changes to the hostile take-over bid regime have been discussed extensively in Canada, a series of similar legislative changes in France have received relatively little coverage. Although attained by different means, both changes point towards a potential shift in power from hostile bidders and activist shareholders to target boards. While the full extent of these changes have yet to materialize, an understanding of both regimes will help readers analyze their impacts and apply them to the Canadian context.
Canada: Proposed Measures
On March 31, 2015, the CSA published proposed amendments to Canada’s take-over bid regime. While these amendments have been previously addressed on this blog, they generally provide target boards with more time to respond to hostile bids, require a minimum tender of fifty percent of outstanding securities, and stipulate a mandatory extension period after the bidder has received tenders of more than fifty percent of the outstanding securities.
As stated previously, “[w]e expect that if adopted, the 120 Day Requirement will result in a reduction in hostile take-over bid activity”.
France: The Florange Act
In March, 2014, the French government enacted the Florange Act. Among other things, the Act effects the one-share, one-vote principle and allows boards to enact defences to hostile bids, such as poison-pills, without shareholder approval.
Most importantly, the Act provides for “time-phased” voting or “loyalty shares”. Under this rule, shareholders who have held a security for at least two years are granted double-voting rights. Unless French corporations opt out, the double-voting rights will come into force on March 31, 2016.
While many corporations have actively opposed it, the more interesting issue is the impacts the Florange Act may have on hostile takeovers of French corporations.
Comparison of Impacts between Canadian and French Regimes
While both the Canadian and French laws will likely dissuade hostile bidders and activist shareholder campaigns, both will achieve this result by different means. The Canadian proposal would provide boards with more time to evaluate proposals and look for other offers. Hostile bidders would have to hold their positions for longer and would be more exposed to share price fluctuations as well as potential rival bids.
Under the Florange Act, most hostile bidders and activists will not receive the second vote under the “loyalty shares” regime. This may discourage this type of investor since their capital would have to be tied up for two years to obtain the special voting rights.
It has also been argued that the French reforms may protect unproductive boards since bidders and activists may be unwilling and unable to act. The same may hold true for Canadian boards, albeit to a lesser extent given the less extreme changes.
Although neither the French nor Canadian changes have fully taken effect, both may have impacts on the relationships between activists, hostile bidders and the respective boards. An understanding of these changing dynamics will allow stakeholders to better evaluate special situations when they arise in the future.
The author would like to thank Mark Bissegger, summer student, for his assistance in preparing this legal update.