New legislation aimed at regulating takeover bids
In March 2006, the parliament passed a new law on takeover bids. The legislation is to incorporate the April 2004 directive, which sets out a common EU framework for takeover bids. However, the regulation will allow specific procedures affecting particular sectors that are deemed ‘strategic’ to be retained.
In the summer of 2005, rumours of a takeover bid by a US multinational for the French-based food group Danone led to heated debate both within Danone and among public opinion. This compounded the already rising concerns about increasing numbers of company relocation announcements, which had sparked many debates (FR0508107S, Word 62Kb) and reports (FR0507106F) on the issue. Consequently, on 21 September 2005, the Minister of the Economy, Finance and Industry, Thierry Breton, proposed to devise new legislation on takeover bids. This happened well before the announcement of other high profile planned takeover bids at the beginning of this year, such as the bid for European steelmaker Arcelor by the world’s largest steel maker Mittal Steel and, more recently, the bid for French energy utility Suez by the Italian electricity group Enel.
Provisions of new legislation
On 23 March 2006, the parliament finally passed the draft Bill (in French) on takeover bids (Projet de loi relative aux offers publiques d’acquisition), which is due to come into effect at the end of May. This legislation will incorporate, into French law, the European Parliament and Council Directive 2004/25/EC of 21 April 2004, setting out a common EU framework for takeover bids. It will also complement legislation passed in 1966, which sets out the entire set of regulations governing takeovers of public companies, as well as the 2001 Act on new economic regulations (FR0105156F). By introducing this new bill, the government hopes to reconcile the international dimension of French companies along with the attractiveness of Paris as a financial centre, with equitable measures designed to protect companies against bids perceived as hostile.
The new law on takeover bids does, however, retain the provisions set out in the decree (in French) of 30 December 2005, establishing a procedure (in French) for foreign investment in so-called strategic sectors, including those likely to impact on public order, national security and defence; this will be subject to government approval.
The bill is based on what has been dubbed the ‘Danone amendment’, which includes:
- for the company launching the takeover bid, the obligation to state its intentions to the Financial Markets’ Authority (Autorité des marchés financiers, AMF);
- for the company that is being bid for, the option of issuing stock purchase warrants.
Ultimately, the legislation aims to deter takeover bids that are either hostile or motivated by speculation, by increasing the targeted company’s capital through the issuing of stock purchase warrants, and thus raising the price to be paid by the bidder.
Moreover, the legislation ensures the ‘principle of reciprocity’. Accordingly, a French company must be able to use protective measures comparable to those available to the company initiating the takeover bid. Therefore, a French company will be able to implement new protective measures without consulting its shareholders, if it is targeted by a company that can launch such a bid without having to consult its own shareholders.
The legislation also incorporates the EU provisions on informing employees. Consequently, the bidder must send its prospectus not only to the works council of the targeted company, but also to its own works council.
The trade unions gave little response to the new legislation, and seemed more preoccupied with their immediate concerns relating to the threats of takeover bids and planned mergers.
As soon as the bill was passed, the employer representative organisation, the Movement of French Enterprises (Mouvement des entreprises de France, MEDEF), welcomed the ‘principle of reciprocity’ provision. According to the Chair of MEDEF (FR0508102N), Laurence Parisot: ‘It’s a good thing for European countries to have a law that allows firms targeted by hostile takeover bids to be on a level playing field with foreign companies.’ She added that the new legislation is a ‘sign of pragmatism and common sense at the right time’.
The left-wing government opposition has criticised this legislation, arguing that it is based on free market principles. Meanwhile, the French Prime Minister, Dominique de Villepin, has stressed the overriding necessity to regulate takeover bids, appealing for ‘economic patriotism’, which he used to justify his announcement of the planned merger of Gaz de France (GDF) and Suez.
On 4 April 2006, the European Commission sent the French government ‘an official injunction’ and launched an infringement procedure relating to the so-called ‘anti-takeover bids decree’ of December 2005. The latter imposed restrictions on foreign investment in 11 sectors of the economy. The government has a two-month deadline to come up with arguments likely to convince the Commission of the need for particular restrictions, such as those in relation to casinos.
Benoît Robin, Institut de Recherches Économiques et Sociales (IRES), France