The new "Florange" law that seeks to protect French companies, has introduced a new right that may prove to be real headache when implementing TOB over French companies.
The legislator has introduced a right for boards in TOB to implement all authorisations to increase share capital in order to increase the number of shares outstanding and thereby try to block the TOB, meaning a correspondingly higher price for the offeror.
Legal inventiveness will probably lead to many French companies lawfully including several resolutions to this end on the agenda of their shareholders' meetings.
But are these measures really effective?
Remember what happened with the Mittal's TOB over Arcelor in Luxembourg. The Board was able to increase the capital like it wanted, at the price it wanted, in favour of a new shareholder, without first consulting the shareholders. This protective clause did not prevent Mittal's TOB from being successful.
This goes to show that an increase in anti-takeover measures is not very effective if there is no operational board representing all the shareholders as well as an approved quality strategy supported by all shareholders.
Meanwhile, the widespread introduction of double voting rights as a result of this same law could also cause many institutional investors or managers of UCITS to limit the number of shares they buy in French companies. To benefit from double voting rights, you must own registered shares, which very few investors do for legal or technical reasons given the complexity of the process.
This is the reason why two ideas that are "good" in principle could backfire on listed companies by leading many investors to prefer markets where the investment rules and TOB are less restrictive and more in line with their expectations.
At a time when we need equity capital to finance the growth of our finest companies, the message given is clear and unfortunately not very encouraging for French companies that are looking for investors to support their development.
Olivier de Guerre
Chairman of PhiTrust Active Investors