At the instigation of EC law (see Council Directive of 12 December 1988 on "the information to be published when a major holding in a listed company is acquired or disposed of" which introduced and generalised this notion), French securities law as amended since 1989 emphasises the concept of "action in concert". The law defines action in concert as "an agreement to acquire or dispose of voting rights or to exercise voting rights in order to implement a common policy with regard to a company" (Art. 356-1-3, para. 1 of the law of July 24, 1966 as amended). The law also sets out certain presumptions of action in concert between certain persons (e.g., companies controlled by the same people). However, these presumptions are not irrefutable and proof to the contrary may be produced.
The difficulty is that the concept of "action in concert" lacks precision and may trigger legal action : persons acting in concert are "jointly bound to meet their obligations under the law and regulations" (Art. 356-1-3 in fine of the law of July 24, 1966). Furthermore, both CBV and COB take-over regulations apply to the bidder, to the target and to persons acting in concert with them. Such persons are thus jointly subject to the same obligations and to any civil or criminal penalties.
Firstly, an agreement is necessary to constitute a "concerted action". Though the definition under French law is very close to the definition of the 1988 directive, two aspects are not included: first, the directive's specifications that a "written agreement" must precede the concerted action and second, that such written agreement must concern a "lasting common policy towards the management of the company in question". This tends to make the French law broader and more difficult to implement as it is very difficult to prove a purely verbal agreement and what features constitute "common policy" (election of company managers, common vote at shareholders or board meetings, financial policy).
Secondly, the subject of the agreement must be either the acquisition or sale of voting rights or the implementation of a common policy with respect to the company in question. However, pre-emption agreements are not considered "concerted action" if no concertation between the parties is required upon the exercise of the pre-emptive rights, and such parties are free to exercise or not such rights (see CBV Opinion No 90-1500 of May 17, 1990, Club Mediterranee, in which the CBV accepted that an agreement in which shareholders' mutually granted each other pre-emptive rights and set option conditions with regard to time limit, price and percentage, did not constitute "concerted action"). However, pre-emptive rights may under certain circumstances constitute "concerted actions" if, for example, the "current circumstances" imply a concertation between the parties : a pre-emption agreement signed among shareholders representing 28% of the voting rights of Societe Auxiliaire d'Entreprise (SAE) was held by the CBV to constitute a "concerted action" because it had been concluded at a time where management was being contested (See CBV Opinion, Nos. 90-4035 of December 26, 1990 and 91-116 of January 11, 1991). A substitute agreement was signed on April 19, 1991 between the same shareholders, apart from those holding SAE shares, who owned 21.2% of the share capital and 2.17% of SAE voting rights. The agreement was signed for a five-year term, included other shareholders and granted mutual pre-emption rights. Since the companies controlled by SAE were no longer signatories, the CBV then ruled that there was no "concerted action". The appeal procedure was therefore annulled. A "portage" transaction may also constitute a "concerted action". In its decision of June 24, 1991 on the Societe Devanlay S.A. v. Societes des Galeries Lafayette et Credit Commercial de France case, the Paris Court of Appeal held that that agreement between Galeries Lafayette and CCF was "concerted action" since the bank undertook to transfer its shares in Nouvelles Galeries within six months either to Galeries Lafayette or to other acquirers agreed by the latter.
The concept of "concerted action" remains ambiguous. The COB's point of view, which it admitted was synthetic, was that "concerted action may be presumed where, over and above any pre-emption right, there is any implication of an underlying agreement or coordination on the distribution of pre-empted securities or an undertaking not to exceed a certain shareholding threshold" (1990 Annual report, p. 54).
The consequences of concerted action are serious because the participants are bound jointly; they apply to thresholds, compulsory take-overs and declarations of shareholdings of 10% or more in privatised companies. The same penalties under civil, and sometimes criminal, law may be imposed equally on all parties acting in concert.
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.
