a) Obligations of the parties
The parties' obligations are set out in the COB Regulation No. 89-03.
i) The first general obligation is to uphold and respect the principle of the equal treatment of shareholders. Take-overs of listed companies must be carried out openly on the stockmarket by way of public bids that may only be challenged by competing bids (see COB Regulation No. 89-03, Art. 3, para. 2).
ii) The second general obligation concerns the information disclosed by the companies involved, which must be full and objective and circulated equally to all shareholders (Art. 3, para. 1).
iii) The third general obligation concerns the "best interest" of the companies concerned. Though this concept is difficult to define precisely and to apply to real cases, it means that company managers must not take irremediable steps committing the companies in their charge to a course of action that would not be to those companies' benefit. Specifically, managers are required to restrict themselves to the "normal conduct of business", at least during a bid (COB Regulation No. 89-03, Art. 3, para. 2). This is another imprecise concept which is open to debate, but it has been accepted that managers are forbidden to dispose of "crown jewels" for example, or to sell treasury stock to friendly third parties (a practice penalised by the courts in the Suez/Compagnie de Navigation Mixte affair in 1989 and again in the Nestle/Perrier affair in 1992).
iv) The final general obligation concerns the irrevocability of the bidder's undertakings (Art. 5, para. 2). An offer, having been made public and approved by the competent authorities (the CBV and the COB respectively), cannot be withdrawn by the initiator except if a competing bid is launched by another bidder. Of course this does not mean that a bidder is prohibited from improving the terms of his offer. Moreover, if the tendering of a minimum number of shares is a condition precedent for the success of a bid, such irrevocable commitment does not preclude the bidder from renouncing his offer if insufficient shares are tendered.
b) The preliminary phase
Before a tender offer can start, ie, before shareholders can tender their shares, there is a detailed preliminary preparation phase which is strictly regulated to ensure the transparency and proper conduct of the transaction.
Filing the bid proposal with the CBV
The bidder must file the bid proposal with the CBV through an institution governed by the banking law of January 24, 1984, ie, a bank or financial institution (CBV General Regulations, Art. 5-2-1). This institution guarantees the irrevocability of the bidder's undertakings (ibid; also Art. 5-2-5). The supporting documentation for the bid must include at least the following information: bidder's aim and intention, number of securities already held, offer price or exchange ratios, threshold beneath which the bid will lapse (Art. 5-2-5). It is important to note that since the reform of May 15, 1992 the tender offer must be for all the capital stock issued by the target (Art. 5-2-2).
As soon as a proposal is filed, the CBV suspends trading of the securities concerned and notifies the Minister of the Economy and the COB (Art. 5-2-1). The CBV then publishes a notice that a bid proposal has been filed; the tender offer period officially begins on the date the notice is published (Art. 5-2-1 in fine).
The CBV then has five trading days in which to make known its decision, by way of an authorisation to proceed published by the SBF (Art. 5-2-6). The CBV may request the bidder to modify the terms and conditions, including the price, of his offer (Art. 5-2-7) and has intervened in this way in the past, albeit rarely, to improve the offers initially made by bidders. Trading resumes two trading days after publication of the authorisation to proceed (Art. 5-2-8).
The CBV then publishes a notice of launch which marks the beginning of the tender offer (Art. 5-2-9). However, the CBV's competence in this matter is far from discretionary as it cannot proceed with the formality until the COB has approved the bidder's prospectus and the necessary prior authorisations have been obtained (e.g., under regulations governing direct foreign investment in France...).
Publication of the launch notice does not imply that the transaction is valid with regard to French or EC competition or merger law (Art. 5-2-10 in fine). Thus, Nestles take-over of Perrier, otherwise held to comply with French law, was approved by the EC Commission under merger control regulations for concentrations having a "community dimension" only on condition that Nestle sold a significant number of mineral water brands to a third party; failure to do so would mean Nestle having to relinquish its acquisition.
Referral to supervisory authorities
Though the Ministry of the Economy's supervisory role has diminished over the years it has not disappeared entirely. It still has an important part to play in authorising direct foreign investment and in merger control, except where mergers have an EC dimension. Also, the bidder must obtain specific government authorisations if the target is in a regulated sector (banking, communications, pharmaceuticals, transport, etc.).
Referral to the COB
Because of the COB's central role in the protection and information of investors and shareholders, no tender offer may take place without its approval; this takes the form of certification of the prospectuses filed by the bidder and the target. A joint prospectus may be filed for a friendly bid.
In practice, the bidder's prospectus for the COB contains the same information as the application initially filed with the CBV (COB Regulation No. 89-03, Art. 5 and 7). However, the COB (though not the CBV) requires the bidder to disclose "his policy intentions towards the target(s) over the next twelve months" and full financial details of the bid. The sponsor countersigns the draft prospectus, guarantees the accuracy of the contents and forwards it to the target (Art. 8).
The COB has five trading days in which to certify the prospectus (Art. 9). This period can be extended for a further five days if further explanations are necessary. It may ask the bidder to change his offer, including the price, or it may refuse to certify the prospectus, thereby halting the procedure.
The target must also file a prospectus, though this can be a joint prospectus with the bidder in the event of a friendly bid, as is often the case (see COB Annual Report 1991, p. 127). The target company must disclose the identity of those shareholders it is aware of (Art. 11) and the management's position on the bid. The COB has three trading days in which to certify this prospectus.
The prospectus must mention all agreements regarding the tender to which the bidder is a signatory or of which he is aware (Art. 7), and any agreements likely to "affect the evaluation or outcome of the tender" which may have been brought to the attention of the target company's managers.
Once certified by the COB, the prospectus(es) must rapidly be brought to the attention of shareholders and published in at least one "nationally distributed" financial daily (Art. 12).
The previously mentioned law of August 2, 1989 requires the head of a company for which a tender offer has been made to inform the works or group council as the case may be (Arts. 40 and 41). The council may invite the bidder to present his proposed bid.
After these requirements have been satisfied and all necessary authorisations received from the supervisory organisations, the preliminary phase comes to an end and the bid may be launched on the markets.
c) Conduct of the bid
This phase is also dominated by strict CBV and COB regulations which the parties are obliged to respect.
The minimum duration of a tender offer is short: 20 trading days as of the date of publication of the launch notice by the CBV (CBV General Regulations, Art. 5-2-20). The bidder is free to propose a longer period and the CBV can always extend it if circumstances require or pursuant to the COB's formal request in "exceptional cases". (COB Regulations No. 89-03,, Art. 12 and Art. 2). In the event of competing bids, the CBV extends the validity of prior offers so that the closing date for all offers is the same (CBV Regulations, Art. 5-2-18).
Proper conduct of transactions
The CBV's general regulations include certain rules of conduct to guarantee and maintain the orderly operation of the stockmarket. If the bidder carries out market sweeps at a higher price, he will be subject to the automatic higher bid procedure. The bidder is also prohibited from trading in the target's shares during the tender offer period if he has opted to abandon his bid should an insufficient number of shares have been tendered (Art. 5-2-23, para. 1). Various measures also exist to prevent speculative transactions, such as prohibitions on short trading and the filing of options contracts (Art. 5-2-17 and 5-2-18).
However, previously and validly executed contracts and agreements involving the securities of the target are not affected by the launch of a take-over bid. Such agreements are enforceable even if they thereby cause the take-over bid to fail.
Transparency of transactions
In the interests of transparency, during a tender offer period all orders for the purchase and sale of securities must be conducted through the market (CBV General Regulations, Art. 5-2-18). However, certain transactions which are not the monopoly of stock brokers can be carried out over the counter e.g. direct sales between natural persons) (See D Carreau and H Letreguilly, La loi No. 88-70 du 22 Janvier 1988 sur les bourses de valeurs, A.L.D. 1988. 137, Nos 30 et seq.). Also, the Paris commercial court has ruled that securities traded "over the counter are not subject to the stockbrokers' trading monopoly" (Paris Commercial Court March 16, 1990. Soc. anonyme Etudes et finances, JCP ,d. E. 1990. II. 15810).
Companies involved in an OPA, their directors, shareholders holding more than 5% of share capital or voting rights and any person acting in concert with the above must each day declare to the Societe des Bourses Francaises any sales and purchases of securities involved in the tender they make. The same applies to persons acquiring 5% or more of the share capital during the tender period. This information is published in the Bulletin officiel de la cote which also publishes the number of relevant shares traded at each stock exchange session (COB Regulations No. 89-03, Art. 22 and CBV Regulations art 5-2-21). The COB may also require intermediaries to disclose customers' names (COB Regulations No. 89-03,, Art. 23).
Changes to the bid
The offer may be changed even after filing, though only by improving its terms. The bidder usually makes a higher bid voluntarily, but may be forced to under certain specific circumstances. The bidder may improve the price, number of securities, terms of payment or mix of cash and shares, but the modified bid must be filed with the CBV at least ten calendar days prior to expiry of the initial offer. It is up to the CBV to set the new expiry date. The details of the modified bid are printed in the Bulletin officiel de la cote (COB Regulations No. 89-03, art 5-2-24) and the bidder must file a supplementary prospectus with the COB and obtain the latter's approval (CBV Regulations art 5-2-24). The COB must also be informed of the substantiated opinion of the board of directors or executive committee of the target company (COB Regulations No. 89-03,, Art.13, para. 3). The documents and their circulation must meet the same conditions as those for the initial bid, except that circulation must be carried out within two days of receiving COB approval.
The counter offer procedure is set in motion automatically if the bidder buys the target company's shares at a price higher than the bid (COB Regulations No. 89-03,, Art. 5-2-25). The consequent increase in price must be at least 2% or equivalent to the higher price paid by the bidder. When a counter bid procedure is automatically triggered, the bidder cannot change the other terms of his offer and therefore does not need to file another prospectus or obtain COB approval. This procedure is also triggered if subscription rights to the target company's shares are bought when a increase in share capital is underway (CBV Regulations, Art. 5-2-25, para. 3).
Any other interested party may launch a competing bid under the conditions of general law discussed above, though there is a strict time limit: the bid must be filed with the CBV at least five (5) trading days before the previous bid expires (Art. 5-2-14). If it is to proceed, the competing offer must be advantageous to the target's shareholders; it may (and usually does) include either a higher price or the partial or total exoneration from quantitative limits on the number of shares to be obtained for the bid to succeed (Art. 5-2-24).
The consequences of a competing bid are significant. First, as is logical, all previous tenders of securities in response to the initial bid become null and void (Art. 5-2-15, para. 1.). Second, the previous bidder has five trading days in which to decide whether to maintain his initial proposal or modify it (Art. 5-2-15, para. 1). Third, the expiry dates of previous pending bids are extended (Art. 5-2-16).
Shareholders wishing to tender their shares must do so through the intermediaries holding their securities (ie, institutions governed by the banking law of January 24, 1984). Orders may be given up to and including the closing date of the bid (CBV General Regulations, Art. 5-2-11). If a competing offer is filed, transfer orders in response to the previous bid automatically become null and void (Art. 5-2-15). Shareholders must act through an intermediary since only evidenced in the records of the intermediary holding the account.
Once the securities have been counted, the SBF publishes a notice giving the outcome of the tender offer (Art. 5-2-13). If the bid is declared unsuccessful because the desired threshold has not been reached, the securities are returned to the intermediaries. If the bid is successful, the notice mentions the number of securities acquired by the bidder. The bidder may not buy or sell the acquired securities for more than the bid price during the final announcement phase because of the need to ensure the equal treatment and protection of shareholders.
However, if a bid is unsuccessful there is nothing to prevent a bidder from immediately launching a new bid having the same objectives but with more attractive terms.
Specific features of exchange offers
Cash and exchange offers are generally governed by the same rules, though there are a few features specific to exchange offers. During a cash offer, the bidder's commitment is irrevocable. To ensure that this is also the case for exchange offers, the application submitted by the bidder to the CBV includes an obligation on the management to convene a shareholders' meeting and to propose to the shareholders the issue of the securities which will be used to pay the sellers (Art. 5-2-5 in fine). Thus, if the next extraordinary shareholders' meeting refuses to endorse the management proposal, the exchange offer fails. However, no such case has been recorded.
The major difference with cash offers is that the bidder is absolutely prohibited from trading in the securities concerned (Art. 5-2-27). This obvious lack of flexibility is hardly likely to encourage exchange offers or even mixed cash and exchange offers.
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.