13 luglio 2018
Bruno Derieux
- Alain Garnier
- Pierre Thomet
- Pierre Tourres
French Government proposes to facilitate squeeze-outs
In its long-time announced draft law for businesses released at the end of June, the French Government proposes to lower the threshold required to implement a squeeze-out following a takeover. This reform will facilitate P-to-P and other going private transactions.
The French Government released at the end of June a long-time announced (but frequently postponed) draft law for businesses (so-called “loi Pacte”) “sponsored by” the French Minister for Economy and Finance. This law is an important milestone in the implementation of President Macron’s business reform program after the reform of employment law in 2017.
Among a very wide range of measures1, the French Government proposes to facilitate squeeze-outs by lowering the threshold of the target’s share capital and voting rights required to be obtained by a bidder to implement a squeeze-out following a takeover.
The purpose of this reform for the current Government is to relax the stock market exit conditions in order to boost IPOs and to avoid too stringent exit rules acting as a deterrent for potential new joiners to the French stock markets such as high growth potential SMEs.
Among a very wide range of measures1, the French Government proposes to facilitate squeeze-outs by lowering the threshold of the target’s share capital and voting rights required to be obtained by a bidder to implement a squeeze-out following a takeover.
The purpose of this reform for the current Government is to relax the stock market exit conditions in order to boost IPOs and to avoid too stringent exit rules acting as a deterrent for potential new joiners to the French stock markets such as high growth potential SMEs.
Lowering the threshold from 95% down to 90%
Currently, a squeeze-out may be implemented following either a buy-out takeover or any other takeover, if the bidder owns more than 95% of the share capital and voting rights of the target following the takeover.
The current regime results from the choice made in 2006 at the time of implementation of the EU directive on takeover bids not to modify the 95% threshold already in force at the time in France for squeeze-out following buy-out offers, although the directive allows Members States to set a lower threshold (95% being the highest level permitted by the directive).
The proposed reform consists in lowering this threshold from 95% to 90% of the share capital and voting rights of the target for any takeover, for companies listed on Euronext or Euronext Growth.
Accordingly, if the reform is enacted, a squeeze-out may be implemented by a shareholder/bidder that owns more than 90% of the share capital and voting rights of the target (which is different from the other test contemplated by the takeover directive and used in the UK of the acquisition of 90% of the securities comprised in the bid).
This new threshold would apply without distinction to any target whether or not it is controlled by the bidder prior to the takeover. As institutions defending minority shareholders’ interests have during the preparatory stage of the draft law stated their opposition to the applicability of this threshold to companies controlled by the bidder prior to the offer, such a distinction may well surface again during the examination of the draft law by the French Parliament.
The current regime results from the choice made in 2006 at the time of implementation of the EU directive on takeover bids not to modify the 95% threshold already in force at the time in France for squeeze-out following buy-out offers, although the directive allows Members States to set a lower threshold (95% being the highest level permitted by the directive).
The proposed reform consists in lowering this threshold from 95% to 90% of the share capital and voting rights of the target for any takeover, for companies listed on Euronext or Euronext Growth.
Accordingly, if the reform is enacted, a squeeze-out may be implemented by a shareholder/bidder that owns more than 90% of the share capital and voting rights of the target (which is different from the other test contemplated by the takeover directive and used in the UK of the acquisition of 90% of the securities comprised in the bid).
This new threshold would apply without distinction to any target whether or not it is controlled by the bidder prior to the takeover. As institutions defending minority shareholders’ interests have during the preparatory stage of the draft law stated their opposition to the applicability of this threshold to companies controlled by the bidder prior to the offer, such a distinction may well surface again during the examination of the draft law by the French Parliament.
Implications of the reform: P-to-P and delisting
The squeeze-out reform will obviously facilitate public to private transactions sponsored by PE houses and other going private transactions.
In particular, the reform will likely render more difficult investment strategies consisting in acquiring a 5% stake (so far) in the target to prevent the implementation of a squeeze-out (and the setting-up of a tax consolidation between the bidder and the target) and leveraging that position, as it has been seen in the past. These investment strategies have been frequently pointed out to support and justify the relaxing of the squeeze-out rules.
The lowering of the squeeze-out threshold is also likely to render comparatively useless the delisting procedure (without squeeze-out of the minority shareholders) that may be requested by an issuer under Euronext listing rules when a shareholder holds more than 90% of its voting rights, but provided that certain illiquidity criteria are satisfied and a simplified tender offer is filed.
In particular, the reform will likely render more difficult investment strategies consisting in acquiring a 5% stake (so far) in the target to prevent the implementation of a squeeze-out (and the setting-up of a tax consolidation between the bidder and the target) and leveraging that position, as it has been seen in the past. These investment strategies have been frequently pointed out to support and justify the relaxing of the squeeze-out rules.
The lowering of the squeeze-out threshold is also likely to render comparatively useless the delisting procedure (without squeeze-out of the minority shareholders) that may be requested by an issuer under Euronext listing rules when a shareholder holds more than 90% of its voting rights, but provided that certain illiquidity criteria are satisfied and a simplified tender offer is filed.
Next steps
The draft law will now be examined by the French Parliament during the autumn and is therefore unlikely to be passed before 2019.
The draft law does not contain any transitional provision about the entry into force of the new rules governing squeeze-out but this may be amended by the French Parliament.
