Buy-outs are subject to the regulations governing simplified tender offers (CBV General Regulations, Art. 5-5-1) except in certain details discussed below. (see "Simplified Tender Offers").
The procedure enables shareholders with a substantial majority stake to take complete control of a listed company and grants minority shareholders the right to be bought out. Buy-outs are generally used to take a company private.
Buy-out at the request of minority shareholders
Any minority shareholder of a company whose securities are listed on the official stockmarket or second market (or since 9 June 1994, traded over the counter) and in which one shareholder or several shareholders acting in concert hold at least 95% of the share capital of the company may ask the CBV to require the majority shareholder(s) to file a buy-out offer ("offre publique de retrait" or OPR) (CBV General Regulations, Art. 5-5-2). Minority shareholders do not have an automatic right to be bought out. Their only right is that of referring their case to the CBV; it is for the CBV to decide whether the request is justified and whether or not to pursue the matter. In its decision "Caves & Producteurs Reunis de Roquefort", the CBV has considered that the article 5-5-2 enables it to appreciate where the filing of a buy-out is necessary or not (decision no 93-3489, Dec. 8, 1993). In this case, the request of the minority shareholders was dismissed, being considered by the CBV that the liquidity of the market was allowing the minority shareholders to trade their shares in normal conditions of time and recurses; which was confirmed by the Court of Appeal (Paris Appeal Court, "Societe Financiere CIRCE", Feb. 25, 1994).
The cost of the buy-out offer will be borne by the majority shareholder(s). The conditions of the offer are negotiated by the CBV and the company in question. If the decision is made to proceed, the offer must be for the company's entire stock capital and securities giving access to stock capital.
The procedure is relatively little used. There were only three cases in 1993 where minority shareholders meeting the above requirements successfully availed themselves of their right (see COB Annual Report 1993, Annex 6 p. 96).
Buy-out at the request of majority shareholders
Majority shareholders holding at least 95% of the securities of a listed company may file an offer with the CBV to buy out the company's entire equity (CBV General Regulations, Art. 5-5-3). As mentioned previously, the majority shareholders' offer in no way obliges minority shareholders to sell and they remain free to keep their shares. They will however be strongly encouraged to sell if they know that the company will be delisted and that their securities will lose most of their transferability. The bidder is required to notify minority shareholders of this eventuality.
Buy-outs at the request of majority shareholders are more frequent than buy-outs at the request of minority shareholders, the procedure having being used twenty-nine (29) times in 1993 (see COB Annual Report 1993, Annex 6 p.96).
Buy-outs have occasionally given rise to disputes regarding the most sensitive aspect of the operation, namely the setting of the price for the shares (see Paris Appeal Court, April 18, 1991, PABIM v. Lazard Freres, Rev. Soc. 1991-765 and annotation by D. Carreau and J.Y. Martin).
The possibility to squeeze out minority shareholders representing less than 5% of the capital or the voting rights have been introduced by the law of December 31, 1993. The conditions of application of squeeze out have been determined by the CBV (Articles 5-6-1 to 5-6-3 of General Regulation ratified by Decree of June 18, 1994, and General Decision No. 94-04).
The squeeze out can only take place after a buy-out in the form of an OPR has been completed. The application for the squeeze out procedure must be filed by the bidder upon filing the OPR with the CBV (Article 5-6-1).
This mechanism can take place in two different ways :
-either the person filing the OPR requests that the squeeze out take place automatically at the closing of the offer, in which case the OPR and squeeze out procedure are subject to the approval of the CBV; the CBV's decision is published by the SBF. The price offered for the securities must be equal to that of the OPR; or
-the person filing the OPR requests to reserve a right to initiate the squeeze out, depending upon the results of the OPR, in which case such person must indicate its decision to the CBV within 10 trading days following the closing date of the OPR. Such person must indicate the price at which it will purchase the securities, which price must be at least equal to the OPR price and is subject to CBV approval.
The person filing the OPR must furnish to the CBV an assessment of the securities of the target company. Such assessment must be presented by an independent expert. The choice of the expert is submitted to the CBV, but the COB has a right to refuse such designation.
The role of the expert and the appreciation of his independence are not defined accurately. Consequently, some difficulties arose in connection with the first cases of squeeze out. (For example, Carnaud Metalbox's offer for AMS Packaging in August 1994 where the independent expert was approved by the CBV but the proposed price was rejected by reason of insufficiency of the justifications).
Following the squeeze out procedure, the target company's securities are delisted from the stock exchange or, as the case may be, they are removed from the over the counter market's daily list.
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.