1. Trends

1.1 M&A Market

One major difference between 2014 and 2015 was that several significant transactions occurred in 2015 even though some of them were announced in 2014: the Lafarge and Holcim merger (EUR32 billion), the buyout of SFR by Numericable (EUR13.5 billion) and GE's acquisition of Alstom's energy businesses (EUR12.35 billion). Widely reported M&A transactions happened in 2014 but with lower amounts, such as L'Oréal's buy-back of 8% of its shares from Nestlé (EUR6.5 billion) combined with the sale of its stake in Galderma (EUR3.1 billion), and the capital increase of Peugeot SA (EUR1.95 billion).

If global M&A activity in 2015 saw a record year (EUR4.282 billion) due to the USA's dynamism, the French M&A market declined to USD160.8 billion (EUR147.21 billion), dropping by about 30% compared to 2014, according to Thomson Reuters. However, acquisitions of foreign companies by French groups increased in 2015 and are expected to grow until France ranks the third largest country in Europe in 2017, after the UK and Germany.

Currently, France is one of the preferred destinations for American, British, Italian and German investors. Since 2010, France has overtaken Germany in terms of the number of transactions. In 2015, 2,794 transactions were completed in France, closely followed by Germany, which recorded 2,648 transactions. According to the Banque de France, the USA was the leading foreign investor in France in 2015 with EUR114.3 billion.

Other figures illustrate the attraction of France's economy: Paris is still the world's second largest host to multinational headquarters and over 500 multinationals have their home office in Paris (such as Bouygues Telecom, LVMH and Total). Furthermore, France is 27th out of 189 countries in the 2016 Doing Business report (ranking first in Trading across Borders). France also continued to move up on the FDI Confidence Index in 2015 and ranked eighth out of 25 countries. On this basis, we can expect 2016 M&A activity in France to remain strong.

1.2 Key Trends

In 2015, M&A activity was marked by a series of particularly large deals rather than many small and medium-sized transactions. Large companies are being forced to combine forces in order to face global competition, whereas medium-sized companies are not as anxious to merge. In 2015, deals were viewed as defensive deals. The above-cited Lafarge-Holcim and SFR-Numericable deals are considered to be illustrations of this trend, as is the aborted Orange-Bouygues Telecom deal.

The desire to secure deals has increasingly led market players to attach fixed-price conditions to their M&A transactions. Under these 'locked box' types of deal, earn-out provisions are ruled out and all risks are borne by the acquirer between the date of the reference accounts and the closing date. Market trends seem to show that investment funds particularly value fixed-price transactions for reasons of time efficiency and risk control.

More generally, the French M&A market in 2015 and 2016 has shown multiple trends.

Firstly, foreigners' interest in French companies has grown. Indeed, US investors have been significant buyers and Asian investors are showing strong interest in French companies (eg Club Méditerranée, PSA and Toulouse-Blagnac Airport) and some negotiations with Qatari investors are ongoing (eg GFI Informatics).

Secondly, the CAC 40 companies were also very active in the M&A market. In April 2015, Capgemini acquired IGATE Corporation, a US IT services company (EUR3.7 billion). In November 2015, Air Liquid revealed the buyout of Airgas, a US distributor of industrial, medical and other gases (EUR12.5 billion). In December 2015, AccorHotels announced the acquisition of FRHI Hotel and Resorts, a Qatari luxury hotels group, including the Fairmont, Raffles and Swissôtel chains (EUR2.6 billion).

Finally, the 2016 H1 French M&A market was characterised by numerous abandoned transactions, as is also the case at a global level. The proposed merger between Orange and Bouygues Telecom which collapsed after lengthy negotiations is one example.

1.3 Key Industries

In 2015, M&A transactions were particularly important in certain sectors, in particular the telecommunications, industrial and chemical, business services, consumer goods, real estate and energy sectors. M&A activity has also taken off in construction (eg Lafarge-Holcim) and high-technology (eg Sopra-Steria).

Telecommunications remained one of the major M&A sectors in 2015. This resulted in the acquisition of Alcatel-Lucent by Nokia for EUR15.6 billion in April 2015. Moreover, Altice, the parent company of SFR-Numericable, acquired Cablevision, a US cable provider, for EUR15.7 billion in September 2015. But all sectors should be involved in 2016.

Capgemini realised a major acquisition with IGATE Corporation in April 2015. This significant M&A operation is viewed as a wish by the French company, firstly, to strengthen synergies (IGATE Corporation is a prominent USA-listed IT company which also provides outsourcing) and, secondly, to gain market share of the US market.

Addition, in 2015, French technology represented around 40 deals in the French M&A market. The transactions included Showroomprive's IPO with a valuation of EUR660 million valuation and Dailymotion's acquisition by Vivendi for EUR217 million. Thirty-four per cent of the French M&A market in 2015 involved venture capital-funded companies: the USA and the UK were the main buyers of French start-ups.

Also, the hotel sector was highlighted with the buyout of FRHI Hotels and Resorts by the French-listed hotel company AccorHotels. This transaction was interpreted as an opportunity for the French company to add prestigious brands to its portfolio and to step forward in the luxury hotels segment.

Lastly, Air Liquide's acquisition of Airgas was the main deal in the gas distribution and welding equipment sector.

2. Overview of Regulatory Field

2.1 Acquiring a Company

The most common means of acquiring a company in private M&A transactions is the use of a share deal, although asset deals also represent a significant proportion of private business combinations. For small businesses in particular, mergers and contributions of assets are less frequently used in this context.

Public M&A transactions can be made in several ways. Takeover offers are usually employed when the target is not closely held, or when there is no controlling shareholder(s). Voluntary takeovers are also employed in the case of hostile bids. Otherwise, because many French-listed companies are closely-held, many investors prefer to make an acquisition of a controlling interest first, resulting in a mandatory offer that is triggered pursuant to Article 234-2 of the General Regulation of the French Financial Markets Authority (AMF) when any person, acting alone or in concert, crosses the threshold of 30% of the share capital or voting rights of a listed company.

A France-listed company may also be acquired by a merger transaction, defined in France as an agreement between two companies according to which all of the assets and liabilities of one of the companies are transferred to the other, while the transferring company disappears. In return, the shareholders of the disappearing company receive shares from the beneficiary company.

Foreign investors may acquire control of a company by a contribution of business or assets in exchange for shares. Contributions of business or assets follow similar rules to mergers. They require the company receiving the asset to approve the transaction via an extraordinary general meeting.

2.2 Primary Regulators

Numerous regulators supervise M&A activity in specific sectors, such as banking and insurance (ACP, Prudential Supervisory Authority), energy (CRE, Commission for Energy Regulation), telecommunications (ARCEP, Regulatory Authority for Electronic Communications and Postal Services), broadcasting communication (CSA, Independent Authority to Protect Audio-visual Communication Freedom) and data privacy (CNIL, Independent Authority on French Data Protection). More generally, the Competition Authority (Autorité de la Concurrence) is responsible for merger control, and works to prevent illegal economic practices. As for public M&A, they are regulated by the AMF, which has to give its approval (visa) of the public documentation filed by the bidder. The AMF regulates corporate finance transactions by listed companies and checks documents issued by such companies when they make transactions such as IPOs, capital increases and rights issues, public cash offers, exchange offers, buyout offers, squeeze-outs, mergers and demergers.

2.3 Restrictions on Foreign Investment

Foreign investments are defined as:

  1. The creation of a new business in France by a foreign business or a non-resident person;
  2. The acquisition of all or part of a branch activity of a French business by a foreign business or a non-resident person; or
  3. All operations performed with the capital of a French business by a foreign business or a non-resident person, where, after the transaction, the capital or the voting rights held by the foreign business or non-resident person exceed one-third of the capital or the voting rights of the French business.

Some foreign investments, as defined above, are subject to prior approval by the Minister for the Economy if made in one of the listed strategic business sectors. Until May 2014, these strategic business sectors focused primarily on military and defence-related activities. Following GE's offer to acquire Alstom's energy businesses, the French government has broadened the scope of foreign investment to include six other sectors: energy (electricity, oil and gas), water, transport, telecoms and health, as well as installations and infrastructure of 'vital importance' (as defined in the French Defence Code).

Examples of strategic business sectors are:

  1. Businesses involved in the gambling industry;
  2. Regulated businesses providing private security services;
  3. Research and development into or the manufacture of means of fighting the illegal use of pathogens or toxic substances by terrorists and preventing the adverse health-related consequences of such use; and
  4. Since the 'Alstom decree' of 14 May 2014, all activities linked to equipment, products or services, including activities ensuring the safety and proper functioning of such installations or equipment, which are essential to the preservation of the national interest in terms of public policy, public safety or national security in the six sectors listed.

It should be noted that the Minister for the Economy may subject authorisation of a foreign investment to certain conditions, including the sale of activities carried out in one of the listed strategic business sectors.

For statistical purposes only, foreign investors must file a declaration with the bank of France when the investment exceeds EUR15 million and involves the purchase of more than 10% of the capital or voting rights of a resident French company or the crossing of a 10% ownership threshold in such a company, any direct foreign investment between related companies, including loans, deposits, or real estate investments, or the purchase or sale of real estate in France by a non-resident.

2.4 Antitrust Regulations

French antitrust law applies when certain turnover thresholds are exceeded and European merger control does not take precedence.

In France, the merger of two or more previously independent companies, the acquisition by one or more companies of the whole or parts of one or more other companies, and the creation of a joint venture performing the functions of an autonomous economic entity in a sustainable manner must result in a notification to the French Competition Authority if:

  1. The parties' worldwide pre-tax turnover is greater than EUR150 million; and
  2. The pre-tax turnover achieved by at least two of the parties in France is greater than EUR50 million.

The calculation of turnover is made in the same way as for European merger control. Some sectors (banking, insurance, retail, etc) are subject to special regulations.

If a business combination has a European Community dimension, then French regulations recede and are replaced by the European Merger Regulation (Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings).

2.5 Labour Law Regulations

The works councils of both companies taking part in a private M&A transaction must be informed and consulted in advance of the transaction. This is mandatory, as the French Labour Code provides that the council has to be informed and consulted about modifications to the economic or legal organisation of the company, particularly in the event of a merger, sale, acquisition or sale of subsidiaries or investment in a company, etc. The works council must have sufficient time and information provided by the legal representatives during this consultation period.

However, in tender offers the information provision and consultation procedure by the bidder follows the public announcement of the deal. On the target side, it is similar and the works council must state whether it recommends the offer within one month of its publication.

A new law adopted on 29 March 2014 increased the powers of the works council in public M&A deals for offers filed under the normal procedure (that is, as opposed to the simplified procedure). The information provision and consultation procedure is now as follows:

Right after an offer in the normal procedure has been filed, the board of the target must inform the works council of the offer and convene a works council meeting. Furthermore, the offer document provided by the bidder must be sent to the works council.

During the first meeting, the council can decide to hear the bidder at a subsequent meeting and designate an expert to deliver a report within three weeks of the filing of the offer. The expert's report will evaluate the offer's industrial and financial policy, the strategic plan for the target company, and the impact of the offer on all interests at stake, employment and the location of centres of activity and decision-making centres. These prerogatives must be closely respected by the bidder otherwise the works council may go to court.

A second meeting must be convened for formal consultation regarding the offer. During the meeting, the information note of the offeror has to be appraised and, if so decided during the first meeting, the expert's report is examined and the offeror's representative is heard – usually the CEO. If the representative does not attend, the penalty is severe: the voting rights attached to the shares the bidder already owns, or is meant to own, are suspended until the day after an actual meeting between the representative and the council takes place.

Moreover, the works council may seek an interim order of the court requesting the communication by the bidder of any missing elements it considers essential for the making of its recommendation. The court must render its decision within eight days. The one-month time limit for the rendering of the works council opinion may be postponed in the event of difficulties arising in relation to the recovery of any requested missing information.

Finally, the offeror must regularly inform the works council of the implementation of its commitments with regard to employment after the closing of the offer.

Since the introduction of the 29 March 2014 law, works councils have been given greater prerogatives. Nonetheless, their role is merely advisory and a works council does not have any actual means to influence the decision of either the shareholders of the target or the bidder.

2.6 National Security Review

Please see 2.3 Restrictions on Foreign Investments.

3. Recent Legal Developments

3.1 Significant Court Decisions or Legal Developments

Significant court decisions in the last three years

A recent decision of the French Court of Appeal seems to favour a smoother process for initiators of takeover bids. On 10 April 2014, the Paris Court of Appeal dismissed the request of minority shareholders of Société de la Tour Eiffel (STE), a French company for which the insurance group SMABTP had launched a takeover bid, aiming at postponing the completion of the takeover to a later date. The AMF decision that authorised the offer was challenged by minority shareholders of STE, who requested that the court postpone the AMF's approval decision until a judgment on the merits of their claim before the Court of Appeal was rendered. In fact, the mere challenging of a decision of the AMF does not, per se, suspend such a decision. The court rejected the claimants' request, stating that the minority shareholders did not bring sufficient evidence to prove that the consequences of an immediate realisation of the takeover would be irreversible or irreparable. Such postponement requests from minority shareholders had commonly been granted by the AMF and thus the Court of Appeal till then, causing significant delays in takeover procedures.

On 29 September 2015, the Commercial Chamber of the Supreme Court ruled on the validity of a 'buy or sell' clause in a case where only one bidder offered a price for the purchase of the shares owned by the other bidder. As a matter of fact, the two shareholders agreed that, on a specific date, each of them would have to provide a third party with an offer to purchase the shares held by the other shareholder, and that the offer of the highest price would be automatically accepted while the other one would be discarded. One shareholder wrote 'nothing' on its offer. Therefore, the offer submitted by the other bidder was successful. The court decided that the price had not been unilaterally determined since the bidding procedure had been agreed between the parties and respected by them. Therefore, if parties have entered into a put and call accepting in advance that the shares' price will be the highest proposed, without overbid, the price is considered as determined and the sale is automatically concluded to the benefit of the party that has proposed the highest price, although the other party has proposed nothing.

Recent legal developments

Reform of law of contract, of the general scheme and of proof of obligations

Ordinance No 2016-131 dated 10 February 2016 reforming the law of contract, the general scheme and the proof of obligations was published in the Official Journal dated 11 February 2016. Subject to ratification by parliament, the ordinance will apply to contracts concluded after 1 October 2016, while contracts entered into before this date will remain governed by the previous law.

The ordinance, which codifies a certain amount of adopted case law, aims at bringing simplification, clarification, balance and predictability to the life of a contract. Each of the three phases (pre-contractual phase, contractual phase and execution phase) has been changed in a way which may affect M&A transactions.

Legal developments regarding the pre-contractual phase

The ordinance provides legal certainty to the economic players during the pre-contractual phase by introducing a general obligation to negotiate in good faith. To this end, it has incorporated established jurisprudential solutions or, on the contrary, reversed them.

On the one hand, the ordinance provides for a pre-contractual information requirement which commits the parties to transfer any relevant information to the other party. The ordinance also sets out a pre-contractual obligation of confidentiality pursuant to which the negotiators cannot personally exploit or divulge the information received during the discussion. The sanction for violation of these provisions is a tort action. Despite these new principles, it is likely that the practice will still be to include such requirements in agreements since the conditions of their application may be adapted.

On the other hand, the ordinance restores the binding force of a unilateral promise. Indeed, since a 1993 decision by the Supreme Court, in case of revocation of a promise by the promisor during the period granted to the beneficiary in order to exercise the option, no agreement could be entered into and the promisor could only be liable for tort damages. The ordinance reverses this rule by stating that such revocation of a promise does not prevent the contract being entered into if the beneficiary exercises the option in due time (ie during the period initially granted without taking into account the revocation). As a consequence, the ordinance provides for the forced execution of the promise.

Legal developments regarding the conclusion of a contract

Firstly, the notion of 'causation' is removed from the Civil Code. Henceforth, the former requirements of a 'subject matter that is certain' and of a 'licit causation' are replaced by a 'content that is licit and certain'. Therefore, the contractual balance will be ensured by the prohibition of an 'illusory' or 'derisory' counterparty. Moreover, any clause which deprives an essential obligation of the debtor of its substance is deemed not to be effective.

Secondly, without serious change to the case law, a service provider may unilaterally determine the price of its services. Even if service agreements, such as transitional service agreements, are customary in M&A transactions and despite some interest in these provisions, practitioners aiming to mitigate the risk of litigation will still fix a mechanism in the service agreement which allows them to determine the price before the execution of the relevant services.

Legal developments regarding contract execution

Since an 1876 decision by the Supreme Court called 'Canal de Craponne', if the initial contractual balance decided by the parties is seriously upset by unforeseen circumstances, the judge cannot reform the contract. The ordinance reverses this decision by providing that if an important change of circumstances, which was unforeseeable at the time of conclusion of the contract, makes performance due by one party excessively onerous and if said party has not accepted the risk of the change, this party may ask the other party to renegotiate the contract. If the renegotiation fails, parties may decide to terminate the contract, or one of them may ask a judge to do so or to reform the contract. During the renegotiation, both parties still have to perform their obligations under the contract. This new provision can be compared to a legal MAC clause that can nevertheless be excluded by the parties.

The ordinance also provides for major changes in the assignment of receivables and debt:

  • So far, the assignment of receivables is enforceable against third parties if the debtor has been notified by a judicial officer or if the debtor has accepted the transfer in an authentic instrument. With the ordinance, the assignment of receivables will be enforceable against third parties with a simple notification to the assigned debtor, or alternatively if the debtor receives notice of the transfer.
  • The ordinance provides for a legal regime for the transfer of debt which did not previously exist. Henceforth, a debtor may assign its debt to another person with the consent of its creditor. But, the assignor will only be discharged if the creditor expressly consents to it. Therefore, if the creditor has accepted the transfer but not the discharge of its debtor, the assignor becomes merely a guarantor of the assignee's debt.

Furthermore, the ordinance implements the following provisions related to contractual non-performance:

  1. Firstly, the ordinance provides that a creditor of an obligation may, after giving its debtor a notice to perform said obligation, seek performance in kind, unless performance is impossible or its cost is manifestly unreasonable. Thus, the enforced performance in kind becomes, in some cases, an alternative to reparation by equivalent in case of contractual non-performance.
  2. Secondly, in accordance with established case law, the ordinance states that in case of serious contractual non-performance by one party, the other party may stop performing its obligations. Moreover, the ordinance innovates by providing that a party may take preventive action by suspending its performance as long as it has become clear that the other party will not perform its own obligations.
  3. Thirdly, in order to restrict the number of judicial proceedings or avoid rescinding a contract, the ordinance introduces the possibility of reduction in price. Pursuant to this provision, a creditor may accept a contractual performance which does not fully satisfy the terms of the agreement and reduce the price accordingly.
  4. Finally, whereas Article 1148 of the French Civil Code provided for the effects of force majeure, it did not provide for its definition. Now, force majeure is defined as an event beyond the control of the debtor, which could not reasonably have been foreseen at the time of the conclusion of the contract and whose effects could not be avoided by appropriate measures. In this case, the contract may be suspended or terminated by operation of law and the parties are discharged from their obligations.

AMF recommendation regarding the disposal of significant assets

Under Position-Recommendation AMF DOC 2015-05, the AMF recommends that the intended disposal of significant assets by a listed company gives rise to a need for the prior consultation of the transferor's shareholders at a shareholders' meeting. According to the recommendation, the assets transferred will be considered significant if at least two out of the five following ratios are equal to, or above, 50% on average over the past two financial periods:

  1. Turnover generated by assets within the scope of the transaction compared to the consolidated turnover of the group;
  2. Transfer price of the assets within the scope of the transaction compared to the market capitalisation of the group;
  3. Net value of the assets within the scope of the transaction (taking into account only those liabilities associated with the assets transferred (as opposed to the entire liabilities of the group)) compared to the group's consolidated balance sheet;
  4. Operating income before tax generated by the assets within the scope of the transaction compared to the consolidated operating income before tax of the group; and
  5. Number of employees within the scope of the disposal compared to the number of employees of the group worldwide.

The AMF recommends that consultation of the general meeting should be done with the quorum and majority of the ordinary general meeting (ie 50% of the voting rights), unless the board decides otherwise in view of the circumstances, specifically the configuration of the shareholding.

If the board of directors decides to take into account different criteria from the above-mentioned ratios or not to consult its shareholders, the board has to explain the reasons for this decision to its shareholders in light of the corporate interest of the company.

Law relating to social and solidarity economy dated 31 July 2014

The 2014 law relating to social and solidarity economy provides, in companies of fewer than 250 employees, that the employees have to be informed of (i) the contemplated sale of the company for which they work and (ii) the possibility for them to present an offer to purchase it.

Once the employees have been told about the projected sale of the company, the sale may not be completed during a two-month period unless each employee has made known his or her decision to present an offer or not.

Since the so-called Macron law which was adopted on 6 August 2015, the sanction for violation of these provisions is no longer the nullity of the sale but a fine of 2% of the sale price.

3.2 Significant Changes to Takeover Law

Takeover law was modified by the 29 March 2014 law. The legislator left the AMF with the task of setting conditions of application of the new rules and its General Regulations accordingly. Those regulations were amended at the end of July 2014 and the main amendments are as follows:

  • Following the Seloger.com case, pursuant to which a voluntary offer was filed at a low price thus allowing the bidder to acquire a significant stake, the new law has introduced a new obsolescence threshold in takeover bids (whether voluntary or compulsory). According to this, an offer becomes null and void at the expiry of the offer period in the event that the bidder has failed to acquire at least 50% plus one share of the shares or voting rights tendered in the offer. This might operate as a guarantee of better articulated financial conditions and of reinforced transparency in connection with the control of the target. If a bidder has acquired more than 30% of the shares of the target company, but has failed to reach the 50% plus one share threshold, the bidder may not acquire any more shares without informing the AMF and launching another takeover bid on the totality of the remaining shares.
  • The 2014 takeover law has lowered the maximum threshold for the acquisitions over a year of new shares in a target company by a bidder who holds between 30% and 50% of the shares or voting rights of the target (also known as the speed acquisition limit) from 2% to 1%.

Finally, the scope of the board passivity rule has been drastically reduced. The board of directors of a target company now have the power to 'take all decisions likely to have the effect of making the bid fail, subject to the prerogatives explicitly reserved to shareholders in their general meetings limited to the interest of the company'. It should, however, be noted that the board of directors must continue to act in accordance with the interest of their company, even in adopting defence measures in the context of a takeover. Moreover, companies who wish to opt out of this new regulation can continue to refer to the old board passivity rule subject to reciprocity in their articles of incorporation.

In June 2014, the AMF implemented several amendments to the AMF General Regulations necessary for the application of the new takeover rules set out in the 29 March 2014 law.

Concerning the new obsolescence threshold of 50% plus one share, the AMF has reserved the right in certain situations to set it aside or lower it, up until five days before the closing of the offer period. More specifically, the AMF can exercise such a right when: the target company is controlled by a third party, when non-selling agreements or an agreement not to tender exists between shareholders, when there are competing offers, or when acquiring majority control of the target company is rendered impossible by law. The possibility for the bidder to set out a voluntary waiver threshold is maintained.

Concerning the modification of the works council consultation procedure, it should be noted that the AMF has modified the deadlines in the public takeover process accordingly.

Given the new reduced scope of the board passivity rule in the new legislation, the AMF has made takeover offers revocable in circumstances where the defence measures adopted by the board of the target company would inevitably lead to substantial modifications of the terms of the offer. According to the AMF, the legalisation of such defence measures cancels the prohibition on the target company or on any person acting in concert with the target company to buy its own stock. However, directors will be required to communicate to the AMF any defence measures before their implementation.

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