General overview

What legislation governs M&A activity in France?

The Civil Code, the Commercial Code, the Decree of March 23 1967, the Monetary and Financial Code, the General Regulations of the French Financial Markets Authority (Autorité des Marchés Financiers, AMF), the Labour Code and the Tax Code govern French M&A.

What impact have recent legislative changes had on the nature of M&A?

There have been no recent legislative changes with substantial consequences on the nature or volume of M&A activities in France.

What have been the most significant M&A transactions in your jurisdiction over the past year?

• The acquisition of Rodamco Europe by Unibail Holding for €14 billion ($21.5 billion).
• The acquisition of Assurances Générales de France by Allianz SE for €10 billion.
• The acquisition of Business Objects by SAP for €3.8 billion.
• The acquisition of the biscuits and cereal products business of the Danone Group by Kraft Foods for €5.3 billion.

How and to what extent, is foreign involvement in M&A transactions in France regulated or restricted?

In principle, foreign investments in France are free and subject only to an administrative notification, except in transactions in sensitive sectors requiring a specific control.

Administrative notifications

When the amount of a foreign investment exceeds €15 million, all transactions in which non-residents acquire at least 10% of the share capital or voting rights of a French company, must be filed with the French National Bank (Banque de France). If the foreign investor does not observe this statistical declaration, criminal sanctions may apply, such as imprisonment for up to five years, confiscation of assets involved in the transaction and a fine of up to twice the amount of the investment.

In addition, every foreign investment in France in which a foreign entity acquires a third of the share capital or voting rights or de facto control of a French entity has to be notified to the French Tax Collecting Authority (Direction du Trésor) upon the signing of the investment agreement. No specific period of time for this notification is provided. If the required notification is not made, the foreign investors may be required to pay a fine of €750.

Transactions in sensitive sectors

Before making an investment in specified sectors – the gambling industry, weapons, cryptology, dual use goods – foreign investors must notify the French Ministry of Economy of the proposed investment and receive authorisation. The definition of the sector and the scope of the Ministry's regulatory authority vary in accordance with the EU or the non-EU origin of the investor. In the case of non-compliance, the Minister of Economy can issue an injunction ordering the infringing investor to abandon or modify the transaction or restore the former situation. In the event of non-compliance, the Minister of Economy may impose a fine of up to twice the amount of the illegal investment. Additionally, the criminal sanctions mentioned above for non-compliance with the statistical notification to the French National Bank may be applied.

Other specific laws impose authorisation or notification procedures for foreign investments in specific sectors, such as banking, insurance, press and television.

What are the recent evolutions of corporate governance in France?

Record date

The French revocable share blocking system has been replaced with an Anglosaxon-inspired record date system which could affect the timing of foreign investment. The identification of the shareholders entitled to attend the shareholders' meeting occurs by way of a snapshot that is taken at 00:00 hours Paris time, on the third working day before the shareholders' meeting. Therefore, a shareholder that sold its shares immediately after the snapshot can still vote at the meeting. This system is mandatory for listed companies and companies where shares are not all in registered form, but remains optional for those where all shares are in registered form.

Golden parachutes

New measures have been introduced to increase the control of severance payments or golden parachutes benefiting directors of listed companies. Severance payments may only be awarded if performance goals in relation to the company's results, which are pre-established by the board of directors, are deemed by the board of directors to have been achieved by the director concerned. Shareholders have tighter control over remuneration agreements entered into with each director, which are now submitted separately, instead of by global resolution, to their vote at the annual general meeting. In addition, remuneration clauses must follow the approval procedure when the director's term of office is renewed.

Role of the Bureau

The increasing role of the Bureau of the shareholders' meeting in its determination and sanction of concerted actions should also be highlighted, as it could have serious consequences on voting rights, as exemplified in the recent case between Sacyr Vallehermoso and Eiffage. The Bureau accused Sacyr, the major shareholder of Eiffage, of acting in concert with other Spanish shareholders. Consequently, it aggregated their shares for the purpose of assessing the concerted group's threshold crossing notification obligations. The global shareholding of the Spanish shareholders exceeded the threshold of 33.33% of the capital and voting rights of Eiffage by about 17%. Since the crossing of the threshold of 33.33% had not been notified to the AMF and Eiffage, the Bureau of Eiffage stripped the Spanish shareholders of their voting rights corresponding to the 17% shareholding exceeding the 33.33% threshold. The Commercial Court of Nanterre confirmed that the Bureau had "not only the power but also the duty" to strip the voting rights from the shares when it discovered that shareholders acting in concert had together crossed thresholds without making the required notifications. This decision is now being appealed.

Due diligence

What are the principal disclosure requirements in a typical M&A transaction?

The AMF General Regulation provides that in public takeovers, the bidder is required to prepare an offer prospectus which must contain inter alia the bidder's intentions concerning the target company for the following 12 months, the terms of the offer, the details of any agreements entered into by the bidder relating to the offer, the opinion of the bidder's board of directors, a responsibility statement from the bidder, and the bidder's presenting bank and accountants.

Additional information relating to the legal and financial characteristics of the offer (such as accounts of the company) is not contained in the offer prospectus but is communicated to the AMF and made available to the public.

The target is required to publish a response prospectus to the offer, which is also subject to review by the AMF. The target's response is required to contain essentially general information relating to the target and the opinion of the target's board of directors.

To what extent do the current disclosure requirements achieve market transparency?

The various disclosure requirements applicable to French listed companies result in a high degree of market transparency.

How significant an issue is prospectus liability in a typical M&A transaction?

The directors of the bidder take responsibility for the accuracy of the information contained in the prospectus, which includes a statement of responsibility to this effect. The offer prospectus must also include a statement from the presenting bank certifying that the information contained in the offer prospectus relating to the offer price is accurate. A report from the bidder's statutory auditors on the sincerity and accuracy of the bidder's accounts is also needed. The directors of the target take responsibility for the information contained in the response prospectus.

How have recent M&A transactions and/or current legislation dealt with the issue of material adverse change clauses?

In private company acquisitions, the inclusion of a material adverse change clause or any other condition to complete is a matter for the parties to negotiate. Material adverse change clauses are not allowed by the AMF General Regulation in takeover offers pursuant to the principle of irrevocability of public offers.

What are the key unresolved issues in France?

There are no key unresolved issues under French law.

Takeovers

Are there any regulations and/or regulatory bodies governing takeovers in your jurisdiction?

France has implemented the EU directive 2004/25/CE on takeover bids with the enactment of the law regarding tender offers (dated March 31 2006) and amendments to the AMF General Regulations. The AMF is the regulatory body with jurisdiction over a takeover.

What are the various methods by which a takeover can be achieved?

Standard procedure

A bidder may acquire control of the target by making an offer to all shareholders to purchase their shares. The offer may consist of a cash offer, an exchange for existing or newly issued securities (including convertible debt securities) or a payment in securities and cash. In theory, it is not prohibited to offer unlisted securities in exchange for the target's securities. However, in practice, the AMF would not approve the transaction under these conditions. The offer may also consist of an alternative bid (cash or securities) or a main bid with a subsidiary bid which must be limited to a portion of the target's shares.

When the bidder holds less than half of the capital or voting rights in the target company, it must use the standard procedure.

Simplified procedure

The simplified procedure can be used by the bidder in the following cases (the AMF General Regulations provide an exhaustive list):

• When the bidder, directly or indirectly, alone or in concert, holds half or more of the target company's capital or voting rights.
• When the bidder makes an offer for no more than 10% of the voting equity securities or voting rights of the target company (the 10% threshold includes the equity securities, and voting rights that the bidder already directly or indirectly holds).

In the simplified procedure, the offer period may be reduced, with the prior approval of the AMF. Third party competing bids and improved bids are not possible. The simplified procedure is implemented by purchases on the market, which means that orders given are irrevocable.

Buyback offer

When a general meeting approves a reduction of capital for reasons other than losses, or when it specifically authorises the board of directors to cause the company to buy back a part of its capital, this can be completed through a public buyback offer.

Mandatory offer

Any person, acting alone or in a concerted action that comes to hold more than one-third of the share capital or voting rights of a company, is required to file a mandatory offer. The mandatory offer procedure is also triggered when (i) a shareholder holding between a third and half of the share capital or voting rights increases such holding by more than 2% within a 12-month period; or (ii) when a company holding more than one-third of the share capital or voting rights of a listed company on any regulated market, constituting the major part of its assets, is taken over by another company or by a group of persons through a concerted action (indirect crossing of thresholds). In this case the bid on the target company must be accompanied by documents proving that an irrevocable and fair takeover bid has been, or will be, filed for all of the controlled listed company's capital by the opening date of the initial takeover bid of the target at the latest.

The AMF may waive the obligation to file a mandatory tender offer in some limited instances.

Standing market offer

Any person, acting alone or in concert, that acquires or agrees to acquire a block of securities giving the person, with the shares already held, the majority of the share capital or voting rights of a listed company, must file a standing market offer valid for at least 10 trading days to acquire all outstanding shares at the same price as it has acquired or has agreed to acquire the block of securities.

Buy-outs and squeeze-outs

When a shareholder (or shareholders acting in concert) holds at least 95 % of the voting rights or share capital of a target company, it can, within three months of the closing of the tender offer, require that the remaining minority shareholders transfer their shares to the majority shareholders.

The majority shareholder(s) may also be required to launch a buyout offer in the following cases:

• When the majority shareholder(s) hold at least 95 % of the capital or voting rights the AMF can decide to compel it to complete a buy-out, on the request of a minority shareholder demonstrating inadequate liquidity to sell its shares on the market.
• Automatically, in the event of a conversion of a société anonyme into a société en commandite par actions (limited partnership with share capital).
• When the controlling shareholder(s) intend to make significant amendments to the company's Articles of Association or decide to sell or contribute all or most of the company's assets to another company, redirect the company's business, or withhold dividends for a period of several financial years. In these cases, the AMF assesses the consequences of the decisions and decides whether or not a buy-out offer should be made.

How differently are hostile and voluntary takeover bids treated?

The process for hostile and voluntary takeovers will differ, as the voluntary takeover will involve negotiations with the target company and can include a more extensive due diligence procedure. However from a legal perspective the main differences between solicited and unsolicited offers are as follows:

• A separate information memorandum: When the offer is solicited, the bidder and the target can, except in specific circumstances, prepare a joint prospectus. When the offer is unsolicited the target company will issue its own response prospectus to the offer where the governing body of the target will inform the public of its opinion on the benefits of the offer or the consequences of the offer for the target company, its shareholders and its employees. In that case, the offer period starts on the day after distribution of the reply prospectus prepared by the target company.
• Length of the offer: In solicited offers where the target and the bidder have issued a joint prospectus, the term of the offer is 25 trading days from the publication of the joint prospectus. In case of an unsolicited offer, the 25 trading day-period begins from the publication of the response prospectus of the target company. But this period cannot exceed 35 trading days from the publication of the bidder's offer prospectus.

What penalties are imposed for parties that violate takeover regulations?

Where a prospectus does not meet the requirements, the AMF will refuse to issue a statement of compliance and will state the grounds for refusal. Any decision of the AMF (either positive or negative) falls within the jurisdiction of the Court of Appeal of Paris. Appeals do not suspend the offer unless the court decides otherwise.

What are the thresholds for disclosing bids and offers

Any shareholder, whether a natural person or a legal entity, acting alone or together with others and coming into possession of a number of shares representing 5%, 10%, 15%, 20%, 25%, 33.33%, 50%, 66.66%, 90% and 95% of the capital or voting rights of a company listed on a regulated market of the EEA, whose registered office is in France or which is incorporated outside the EEA but for which France is the home member state under the EU Prospectus Directive, must inform the issuer and the AMF of the total number of shares or voting rights held when crossing the threshold. Listed companies can set out in their Articles of Association lower thresholds than those stated above (the lowest threshold cannot however be less than 0.5 % of the company's capital or voting rights).

Crossing the 33.33% threshold of the share capital or voting rights creates an obligation for the shareholder to issue a takeover bid for the entirety of the issuer's shares and voting rights. Furthermore, the crossing of the 50% threshold gives rise to an obligation for the shareholder to launch a standing market offer (see above).

In addition, a person, acting alone or with others, that comes to hold 10% or 20% of the capital or voting rights of a listed company, must file a declaration with the AMF and the relevant company whereby it discloses its intentions with regard to the target company for the next 12 months.

Competition and antitrust

What have been the major recent developments in competition policy and legislation as they relate to M&A in France?

An obligation to notify a merger is triggered where the operation meets the following thresholds:

• The parties to the concentration have a combined worldwide turnover (pre-tax) exceeding €150 million ($231 million).
• At least two of the concerned parties each have a pre-tax turnover in France of more than €50 million.
• The transaction does not fall within the scope of European Council Merger Regulation 139/2004 of January 20 2004 (ECMR).

Under French law, the French Minister for Economy and Finance has jurisdiction to authorise or to prohibit a merger. In cases triggering a phase II (in-depth investigation), the opinion of the Competition Council is required. The Minister for Economy and Finance is not bound by the Competition Council's advice, although it generally follows it. A service within the Ministry for Economy and Finance is entirely dedicated to merger notification filings (the Direction Générale de la Concurrence, de la Consommation et de la Répression des Fraudes, DGCCRF). Decisions of the Minister may be appealed with the Conseil d'Etat (French administrative Supreme Court), although so far this has only led to two cancellations of the Minister's decisions.

How are the competition and antitrust regulations enforced in France?

Anti-competitive agreements, concerted practices, monopolies and abuses of a dominant position are controlled and monitored by the Competition Council and French courts.

The Competition Council can issue cease-or-desist orders and impose interim protective measures as deemed necessary and/or requested by related third parties. It can also impose injunctions, order that the decision, or parts of the decision, be published, broadcast or posted under specified terms and conditions, and order that the decision, or parts of the decision, be inserted into the annual report of the company concerted.

In addition, the Competition Council may impose fines of up to 10% of the highest worldwide turnover (excluding taxes) achieved during any of the fiscal years preceding the prohibited agreement or practice. Fines may, however, be reduced for companies that do not challenge the alleged prohibited practices and undertake to modify their behaviour in the future (transaction procedure), as well as for whistleblowers – that is, companies that have contributed to establishing the underlying facts of the prohibited practice and to identifying its perpetrators by providing information which the Competition Council or DGCCRF did not have previously (leniency procedure described by the Competition Council's guidelines of April 11 2006).

On December 18 2007, the Competition Council has for the second time applied its leniency programme and granted full immunity to the two leniency applicants. In addition, the commitment procedure is now often applied. According to this procedure, the infringing companies agree to put an end to their anti-competitive practices by proposing commitments. In return the Competition Council may agree to stop all the proceedings initiated against them. The Competition Council will issue guidelines concerning this procedure in the coming months. In France, this procedure has met with considerable success among the infringing undertakings particularly in cases where there is a risk of abuse of a dominant position and where case law is not yet well settled.

Any anti-competitive agreement, commitment or contract clause that infringes the Code of Commerce prohibitions is void and not enforceable. French courts may decide that a specific clause is anti-competitive and therefore null and void, or that the entire contract is null and void if the anti-competitive clause is essential to the contract. Any individual that fraudulently takes part, personally or decisively, in restrictive agreements may face up to four year's imprisonment and a fine of up to €75,000. Even if this provision has rarely been implemented, several prison sentences have already been ordered in cases related to bid riggings.

The agents of the DGCCRF have extensive investigation powers to ensure compliance with competition/antitrust regulations. Their investigation powers have even been increased since the 2004 Order, which allows them to place any commercial premises, documents and information media under seal for the duration of the inspection. They may be instructed to investigate either by the Minister or the Council. The Minister may exercise investigation powers provided there are reasonable grounds to suspect that an infringement of applicable Code of Commerce provisions was committed. Furthermore, to facilitate the search for evidence, the Code of Commerce provides that French courts may authorise a dawn raid inspection to establish that the provisions of the Code of Commerce have been or are being breached.

How do legislation and regulation approach the issue of "abuse of dominant position"?

Under French law, dominant positions are not prohibited per se. Only abuses of such positions are unlawful.

To what extent are parties to an M&A transaction subject to prior notification requirements?

Merger notifications (if required) are mandatory. There are penalties for closing a transaction before clearance is obtained, or closing without having applied for clearance. For the parties, a fine may be imposed of up to 5% of their turnover in France, exclusive of taxes, plus, as the case may be, 5% of the turnover of the target company. In the case of individuals, fines of up to €1.5 million ($2.3 million) may be imposed. On January 28 2008, fines been imposed on undertakings that failed to notify their transaction before its full implementation.

Author biography

Hubert Segain Herbert Smith Hubert Segain is an attorney in the Paris corporate group of Herbert Smith. His practice focuses on domestic and international M&A involving private and public companies. He is also active in public offerings and private placements of securities. Hubert Segain is admitted to the Paris and New York bars. He holds a postgraduate degree in private law from the University of Paris I (1995), a postgraduate degree in business law from the University of Paris II (1996) and an LLM degree from Yale Law School (2000).