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
