The technique of mandatory offers, borrowed from English law, was adopted in the EC directive proposal on take-overs and other general bids.
The CBV regulations set the thresholds triggering obligatory filing of a proposed tender offer. Conversely, if the thresholds are not reached, market sweeps and contra orders can still be made and an acquirer is only required, apart from declaring when thresholds are reached, to declare its intentions for the next twelve months if more than 20% of a listed company's share capital is acquired. (COB Regulations No. 89-03, No 88-02).
Any natural or legal person acquiring, alone or in concert, more than one-third of the shares with voting rights of a company listed on the official stock market or second market (but not the over the counter market) is required to inform the CBV and file a tender offer (CBV General Regulations, Art. 5-4-1).
As with voluntary offers, mandatory offers must be made for all the target's equity securities including those giving access to deferred equity and to voting rights (Art. 5-4-1). Under this procedure, as is logical, the bidder cannot set in any way whatsoever a minimum number of securities for the bid to be successful (Art. 5-4-1 in fine).
The one-third threshold may be reached in several ways. The bidder may reach the limit following acquisitions on the market or from third parties, for example.
The threshold may also be reached following an indirect acquisition (CBV General Regulations, Art. 5-4-3). This would be the case following the take-over of an unlisted company (a holding company, for instance) holding more than one-third of the shares of a listed company where the shareholding represented an "essential part" of the holding company's assets. Although this indirect extension of stockmarket regulations to private companies is motivated by the desire to protect minority shareholders and prevent misuse of procedures, implementation of the rule is unlikely to be straightforward.
If the shareholders concerned hold directly or indirectly between one-third and one-half of the equity securities or voting rights of a listed company and increase their stake by "at least" 2% or acquire an absolute majority of the shares, they are obliged to file a tender offer (CBV General Regulations, Art. 5-4-4).
If the conditions for filing a mandatory offer are met, the offer will be subject to normal take-over regulations (Art. 5-4-5).
The CBV has wide powers to grant exceptions under Art. 5-4-6, which provides for eight possible exceptions. They are of unequal importance: many concern the purely technical crossing of thresholds following transactions within a group of companies while others concern financial transactions (capital reductions or increases in favour of named persons).
However, two of these exceptional cases are likely to cause problems. The first is when the one-third threshold is exceeded by no more than 3% and the acquirer undertakes to resell the securities within eighteen months. The other, which was added in 1992, enables the CBV to make an exception if the one-third threshold was exceeded following a duly disclosed and published "concerted action agreement" where the signatories have made no significant acquisition of shares in the preceding twelve months and undertake for a two-year period to respect the "respective balance of their shareholdings".
Clearly, this measure introduces an element of flexibility into mandatory offer procedures, but it also introduces an element of doubt: the concept of "action in concert" is imprecise and it is unclear what use the CBV will make of its powers, though in the past requests for exceptions have been granted generously. Five mandatory offers were filed in 1991, none of them imposed by the CBV, whereas 53 exceptions were granted (see COB Annual Report 1991, pp. 149-154).
Any exception granted by the CBV must be substantiated and published in an SBF notice. As with any CBV decision, an appeal for cancellation or reversal may be made to the Paris Appeal Court and disputes have arisen in the past regarding the CBV's exercise of its powers to grant such exceptions.
For further information contact Herve Letreguilly on +33 1 4471 1717.
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