The impact of the “Florange Law” on French companies raises
major issues and has sparked lively debate between companies, asset-management
professionals and institutional investors. The “Florange Law” effectively
changes the legal status of two fundamental shareholder rights:
- Double Voting Rights. All listed companies will
automatically benefit following their 2016 annual general meeting (AGM). Companies
wishing to do so can propose a shareholder vote to adopt single voting rights in
their by-laws (requiring a qualified majority of 66% of shareholders present or
represented at the AGM).
- Board neutrality during
takeover bid periods. Boards may take decisions “to thwart a takeover
bid”. Until now, it is the Board’s duty to remain neutral during
takeover bid periods in order to respect equality between all shareholders.
These two provisions significantly modify shareholder
rights in France through the standardised application of their measures in
order to “protect” French companies, as the debates in the French
parliament have highlighted. It would appear however that the legislator has failed
to take into account the requirement for shareholders to hold
registered shares in order to benefit from double voting rights, which
automatically excludes all UCITS and most pension funds, for the legal or technical
reasons familiar to all market professionals. Nor does the legislator seem to
have taken into account that France, like a number of other countries (excluding
Germany), has signed a reciprocity agreement which enables a company targeted by
a French company to deploy the same means of countering a takeover bid.
Twenty two of the CAC 40 companies already practice double
voting rights and we have written to these companies to remind them of the “one
share, one vote” principle and requested that they install mechanisms to ensure
shareholder equality. We effectively consider it important if double voting
rights exist, that ALL shareholders can benefit to avoid the risk of undeclared
creeping control.
We simply asked the thirteen companies with no double
voting rights to state their intentions and we were surprised to hear that most
of them are greatly attached to their single voting rights. GDF SUEZ recently
announced that its Board plans to propose a resolution to maintain single
voting rights, which would very probably be refused as the French government owns
32% of the capital and has stated that it is in favour of double voting rights
in order to reduce its stake, whilst maintaining the same number of voting
rights. It is also likely that the introduction of double voting rights will
disrupt the balance of the Renault/Nissan agreement, as Nissan has no voting
rights despite owning 15% of the shares, whilst the French government, which also
owns 15%, could halve its stake and maintain the same power in terms of voting
rights.
Some observers may consider us irresponsible investors
as French listed companies are at risk due to their lack of capital and the adoption
of double voting rights would provide protection. In the case of Lafarge
however, the main shareholder benefitting from double voting rights publicly
campaigned for the merger with Holcim. This will lead to the group being absorbed
by a Swiss company, which will therefore modify corporate governance and cause
the company’s registered office to change location, while forcing out French
retail investors who will no longer be able to hold Lafarge Holcim shares in
their personal equity plans.
This clearly demonstrates that double voting rights
are also a means of securing control, that each company’s individual situation
is different, with a specific balance of relative shareholder power, and that
the generalisation of this policy will perturb some companies as certain shareholders
will increase their weight. It will probably encourage French or foreign
investors to rapidly secure control, incurring a risk of destabilising the
fragile equilibrium in place.
Similarly, the question of neutrality may cause a
Board to take action in the event of a takeover bid that shareholders
would not necessarily have accepted. Would Vivendi shareholders have validated the
sale of 70% of the group’s business for example?
Foreign investors currently hold majority stakes in our
companies. The best protection is provided by the quality of strategy deployed,
in parallel with governance which includes all shareholders in major decisions via
the AGM. There is a major risk that certain investors reduce their French
equity exposure as they consider that the companies in question no longer
comply with their governance requirements, chiefly the principle of “one share,
one vote”.
Our duty as a minority investor is to warn all companies
and investors of the risks incurred by such modifications, so that they can make
a considered decision in accordance with their strategy and existing
shareholders. We are convinced that as responsible investors, we are simply
fulfilling our role as a shareholder and that it is up to the shareholders of
each company (and not the government) to decide on a case by case basis, as a function
of their own situation. Our companies’ futures are at stake, as they depend on
all of their shareholders to provide the means for growth.
Olivier
de Guerre
PhiTrust
Active Investors
olivier.deguerre@PhiTrust.com
