The legal framework for tender offers is relatively recent, deriving for the most part from three basic texts adopted in 1989. The general principles are set out in Chapter II of Law No. 89-531 of August 2, 1989 on the security and transparency of financial markets. Two sets of implementing regulations were adopted on September 28, 1989 by the external regulatory authority, the Commission des Operations de Bourses ("COB") (COB Regulation No. 89-03) and by the self-regulating market authority, the Conseil des Bourses de Valeurs ("CBV"). The CBV significantly amended its general regulations on May 15, 1992 (CBV General Regulations).
As well as statute, case law is assuming an increasingly important role which legal practitioners cannot ignore. The courts have been asked to interpret new concepts and principles of stock exchange law and referral to the courts, as in the United States, is tending to become an element of strategy.
According to the COB's official definition, "a tender offer is the procedure whereby a legal or natural person can make public his intention to acquire or dispose of all or some of the securities of a company listed on the official stockmarket or second market or traded on the over the counter market of a securities exchange" (COB Regulation No. 89-03, Art. 1, para. 1).
I. Securities concerned
Tender offers mainly take the form of stock exchange transactions since they involve corporate securities listed or traded on the various markets. However, closed or private companies (e.g., holding companies) controlling listed companies may be subject to rules on mandatory offers or, in certain circumstances, on simplified tenders. Tender offer procedures may also be used in order to take over companies which, although remaining private, are deemed to be public companies because they have more than 300 shareholders, one of the standards set by the COB in this respect (COB Regulation No. 92-02, Art. 2).
Tender offers may be made for equity securities (shares) or debt securities (bonds). Since the 1992 reform, tender offers that are made for a company's equity securities must also include equity-linked securities (warrants, convertible bonds, bonds exchangeable or redeemable for shares) and securities giving access to voting rights (investment certificates, voting rights certificates and preference shares).
Tender offer regulations apply only to securities traded on organised markets in France.
II. Territorial scope
French stock exchange regulations and securities laws provide that take-over provisions apply to "companies incorporated under French law" whose securities are listed or traded on organised markets (Art. 5.1.1). Thus, a foreign bidder wishing to take over a French public company must comply with all aspects of French securities law.
Further, Art. 3, para. 1 of the French Civil Code states that "laws pertaining to national security and the integrity of the State and its institutions are binding on all persons inhabiting the territory". The protective elements of French securities law apply where tender offers are launched outside France for foreign companies which have French shareholders or whose securities are listed or traded on French markets. Thus, French law on information required to be made available to French shareholders must be complied with during take-overs of foreign companies conducted outside France. In the absence of a satisfactory international agreement, ad hoc solutions have been found to protect the rights of French investors (see COB Annual Report 1978, pp. 88 and 90 and Annual Report 1991, pp. 171 and 172).
French laws of public policy in the economic sphere may also apply and may even obstruct foreign tender offers taking place on the stockmarkets of other countries. This was the case for example when the French Competition Council (Conseil de la Concurrence) was asked to rule whether the conditions of competition in France had been distorted following Nestles take-over of Rowntree Mackintosh on the London stock exchange. After a careful examination of the chocolate market situation in France, the said council came to the conclusion that the combined market share resulting from the absorption of Rowntree by Nestle did not alter the conditions of competition on this specific market. In other words, a take-over outside France may be blocked, at least partially, if its effects are sufficiently detrimental to the conditions of competition in France.
III. Persons involved
Take-over regulations naturally apply to the parties directly involved, ie, the bidder and the target (COB Regulation No. 89-03, Art. 1, para. 2). They also apply to "persons acting in concert" with either the bidder or the target (ibid., Art. 2).
1. The Bidder
The bidder may be any French or foreign natural or legal person. The bidder's legal status is irrelevant: he may be open to tender offers himself (the normal case for listed companies) or immune from them (natural persons, private companies, mutual funds, state-owned companies, partnerships, etc.). However, non-French bidders must abide by foreign investment regulations (CBV General Regulations, Art. 5.2.5.) These provide that non-EC direct investors must obtain the prior approval of the Minister of the Economy whenever their interest in a listed company exceeds 20% of its capital (Decree No. 90-58 of January 15, 1990, Art. 12, para. 1). The Minister has one month in which to exercise or waive his discretionary right to stay the transaction; absence of response is deemed to constitute approval. Thus, an American bidder acting through a company incorporated in the United States may be prevented from launching a bid for a French target by an executive order of the Minister of the Economy.
A bidder may be tempted to circumvent this control by using a subsidiary established in an EC member state, since such a company would benefit from the various EC freedoms (Treaty of Rome, Art. 58, para. 2) including the specific right to participate, in the same way as nationals, in the capital of local companies (ibid., Art. 221). However, as French regulations currently stand this is an uncertain option. Although the above-mentioned decree of January 15, 1990 recognises the principle that natural or legal persons established in the EC are free to invest directly in France (Art. 11, para. 1), it also requires such persons to be directly or indirectly controlled by EC residents if they are to benefit from the freedoms granted to "EC investors" (Art. 11, para. 1, in fine). On this point French law does not comply with EC law, which does not contain any criterion of control for determining which legal persons benefit from the freedoms provided by the Treaty of Rome (see Art. 58, para. 2).
The chances of the French government opposing an attempted take-over of a French listed company by a non-EC company are difficult to evaluate, except in the case of so-called "strategic" companies. Although no official definition of such "strategic" companies exists, it can be safely stated that they include the defence, audio-visual, energy, communications and transportation sectors. However, French policy has relaxed over the years, as is shown by developments in the regulation of foreign investment. In practice, the Minister of the Economy has not obstructed take-overs of French companies even when he has had the power to intervene. For example, in early 1992 the Swiss company Nestle, was able, without government interference, to take over Perrier, a blue chip company whose products are part of the cultural and gastronomic heritage of France (mineral waters such as Perrier, Volvic, Vichy, Vittel, etc. and the Roquefort caves).
2. The target
As mentioned previously, take-over regulations apply compulsorily to listed companies but may also be extended to "private" companies on a purely voluntary basis.
The bidder must also take into account any defensive measures the target company may have developed against hostile bids. (See "Anti-take-over Defences")
For further information contact Herve Letreguilly on +33 1 4471 1717.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.