France Squeeze-out Guide IBA Corporate and M&A Law Committee 2014 Contact Jean Claude Rivalland Allen & Overy Jean-claude.rivalland@allenovery.com
Contents Page INTRODUCTION 2 SCOPE OF A SQUEEZE-OUT 2 REQUIREMENTS TO LAUNCH A SQUEEZE-OUT 3 SAFEGUARDS IN RESPECT OF THE EXPROPRIATION PRICE 3 PROCEDURES 4 TIMETABLE OF SIMPLIFIED CASH OFFER FOLLOWED BY A SQUEEZE-OUT 5 CONCLUSION 6 Page 1
INTRODUCTION The possibility to exclude the minority shareholders from the share capital of French listed companies through a squeeze-out procedure (a Squeeze-Out) (retrait obligatoire) was introduced in French law in 1993. Based on the appropriation of minority shareholdings by a controlling shareholder without any means for the evicted persons to object, the SqueezeOut led initially to much legal debate as being potentially detrimental to individual property rights guaranteed by the French Constitution and justified only by private interests. For this reason, Squeeze-Outs could only be carried out in a single situation until 2006: a possible procedure after a public buy-out offer launched by a bidder already holding at least 95% of the voting rights of the target company at the point of filing. The law was passed in 2006 to transpose the European Takeover Directive (Dir. No 2004/25/CE, 21 April 2004) (the Directive) extended significantly the previous regime. The intermediate stage of the buy-out offer is no longer compulsory, although it is still possible on a voluntary basis. Squeeze-Outs may now follow any type of public offers provided that only 5% or less of the share capital and the voting rights of the target company remain in the free float. Squeeze-Outs remain subject to strict and protective regulations. They are governed by: Articles L.433-4 III and seq. of the French Monetary and Financial Code (Code monétaire et financier); Articles 237-1 and seq and Articles 261-1 and seq. of the General Regulations of the French Autorité des marchés financiers (the AMF) (i.e. the French market authority); The AMF Instruction 2006-07 dealing with the public offer procedures; The Instruction 2009-08 dealing with the role of independent experts. The implementation of a Squeeze-Out involving French listed companies is under the AMF supervision. AMF decisions may be challenged before the Paris Court of Appeal (Cour d Appel de Paris). Therefore, case law contributes to clarify the applicable legal framework. SCOPE OF A SQUEEZE-OUT Squeeze-outs may only apply to: French companies whose securities are listed on a EEA regulated market; French companies whose securities have been listed on a EEA regulated market, even if now delisted; French companies whose securities are listed on the French Alternext; and Page 2
French companies whose securities have been listed on the French Alternext, even if now delisted. REQUIREMENTS TO LAUNCH A SQUEEZE-OUT The implementation of a Squeeze-Out is subject to multiple conditions. A Squeeze-Out may only be carried out: after the closing of a preceding offer. Any preceding offer means (i) a takeover bid, whether mandatory or voluntary i.e. an offer filed by a shareholder, or several shareholders acting in concert, holding less than 50% of the share capital and voting rights of a target company but also (ii) a simplified public offer, i.e. a public filed by a bidder already holding alone or in concert the majority of the share capital and the voting rights or (iii) a buy-out offer filed by a bidder holding alone or in concert 95% or more of the target company s voting rights; within a three-month period starting from the closing of the preceding offer; provided that the securities not tendered to the relevant preceding offer represent 5% or less of the share capital and the voting rights of the target company at the outcome of the preceding offer. In the case where the target company has issued securities giving access to the share capital, a Squeeze-Out is permitted only if the shares that could be created, through conversion, subscription, exchange, redemption (or any other means) of the untendered securities plus the untendered outstanding shares represent together 5% or less of the fully diluted share capital. It is worth stressing that the 95% threshold (vs. 5% or less in the free float) must be reached due to the tendering orders during the offer period and that securities which would be acquired by the bidder during the following three months would not be counted for purposes of the computation of this threshold ; and only if the bidder has clearly stated its intention to exercise a potential Squeeze-Out right upon the filing of the preceding offer. This intent may be either a firm one or expressed as a simple option, the bidder reserving its final decision depending on the offer results. In the first case, the independent expert (see below) must deliver a fairness opinion acknowledging that the offer consideration will be also the indemnification price. In the second case, the independent expert should certify the equitable characteristics of the proposed price in the context of the offer, regardless of the possible expropriation. As part of this scenario, the implementation of a Squeeze-Out will require that the independent expert confirms in an additional report that the offer price will also provide a fair compensation for the evicted shareholders. This kind of twosteps decision remains very rare as the bidder runs the risk of being forced to increase the price for the squeezed securities in the second phase, and then being criticized for this inequality of treatment between the shareholders which have tendered their securities to the offer and the expropriated shareholders. SAFEGUARDS IN RESPECT OF THE EXPROPRIATION PRICE The indemnity paid to the expropriated shareholders must be at least equal to the offer price of the preceding offer. For the reason developed above, in most of the cases, the net indemnity is strictly equal to the offer price. Page 3
The expropriated shareholders must be offered a cash payment. This is why the preceding offer always includes a cash alternative. In the case where the bid would also contain, in whole or in part, an exchange offer, the bidder may propose to the expropriated shareholders to opt, at their own discretion, for a compensation paid in securities, as long as a cash option is offered as an alternative. Unless the preceding offer is a takeover bid (see below), before the implementation of a Squeeze-Out, an independent expert appointed by the board of directors of the target company must deliver an opinion regarding the fairness of the offer price not only in the context of the proposed offer but also as compensation for the expropriated securities holders. As part of this work, the independent expert reviews with a critical eye the multi-criteria valuation made by the sponsoring bank designated by the bidder. French law provides that this valuation must use the objective methods applied in cases of asset disposals which take into account the value of the company s assets, its past earnings, its market value, its subsidiaries, and its business prospects, according to a weighting appropriate to each case. A summary of the valuation drafted by the sponsoring bank is included in the bidder s offer document; the independent expert s report is available in whole in the target company response document. The AMF issues a clearance decision on the basis of the expert s report, indicating that the bidder s financial proposal may be accepted in respect of the offer and in respect of the Squeeze-Out as well. Thereafter, the acceptance period may be opened. If the preceding offer is a takeover bid, the delivering of a fairness opinion by an independent expert is not mandatory. Such an exemption is justified by the success of the takeover bid allowing the bidder to reach the Squeeze-Out threshold. Indeed, in this case, the shareholders have in their vast majority accepted the consideration offered. This is viewed as a plebiscite on the price which legitimizes the subsequent forced repurchase of the outstanding securities on the same financial terms. PROCEDURES There are three possible procedures. Squeeze-Out following a buy-out offer: an automatic Squeeze-Out may be carried out just after the publication of the preceding buy-out offer s results to the extent the bidder already holds 95% of the voting rights of the target company when filing its offer. Squeeze-Out following a simplified cash offer or a simplified offer including a cash alternative: the possibility to implement the procedure is linked to the acceptance rate of the preceding offer. If the bidder succeeds in reaching at least 95% of the share capital and the voting rights of the target company, it may request from the AMF the setting up of a Squeeze-Out. As a general rule, the bidder applies for the Squeeze-Out as soon as the offer results are known. The AMF publishes a notice indicating the Squeeze-Out date. Nyse Euronext Paris also publishes a notice giving more details and the schedule of the procedure. Lastly, the bidder releases a statement in a newspaper embodying legal notices in order to inform the public of the Squeeze-Out. Page 4
The Squeeze-Out triggers a simultaneous delisting of the target company securities. Squeeze-Out following a takeover bid: The process is the same as that described for a simplified offer. As a reminder, in case of a Squeeze-Out following a buy-out offer or a simplified offer, a fairness opinion must be delivered before the AMF issues its clearance decision whereas such a fairness opinion is not mandatory regarding a Squeeze-Out following a takeover bid. In all cases referred-to above, the Squeeze-Out triggers the transfer on the bidder s account of all the securities not tendered to the preceding offer. Before this transfer, the bidder appoints an agent (generally the sponsoring bank) to be in charge of centralising the process (the Centraliser). The bidder blocks the funds corresponding to the compensation amount into a frozen account opened with the Centraliser. Financial intermediaries keeping the securities account of the expropriated shareholders have to apply for the payment with the Centraliser. The unallocated funds are kept by the Centraliser during a ten-year period and, thereafter, transferred to the French Deposit and Consignment Office (Caisse des Dépôts). The funds will then be available to successors in title and after to the thirty-year statute of limitation, will be deemed transferred to the French State. TIMETABLE OF SIMPLIFIED CASH OFFER FOLLOWED BY A SQUEEZE-OUT D Start of the offer period Filing of the draft simplified offer with the AMF Publication by the AMF on its website of a notice stating the terms and conditions of the draft offer Publication of the draft Offer Document including the sponsoring bank valuation and the bidder's intention as to the implementing of a Squeeze-Out Filing with the AMF and publication of the draft response document of the target including the independent expert's report D+10 Clearance decision of the AMF Approval of the draft response document of the target D +12 Availability of the final versions of the bidder's Offer Document and the target's Offer Document (on the websites of the AMF, the bidder and the target) D+13 Opening of the acceptance period of the offer (publication of a timetable by the AMF) D+23 Closing of the acceptance period of the offer D+28 Indicative date Publication of the results of the offer Page 5
D+29 Request to the AMF for the implementation of a Squeeze-Out if, following the offer, the minority shareholders of the target hold less than 5% of the share capital and voting rights D+30 Publication by the AMF of a notice the implementation date of the Squeeze-Out Publication by the bidder of a statement informing the public of the Squeeze-Out in a newspaper carrying legal notices. Publication by Euronext Paris SA of a notice informing the public of the details of the Squeeze-Out D+31 Implementation of the Squeeze-Out (*) Days above are business days Automatic delisting of the shares of the target Filing by the bidder and blocking by the institution centralising compensation operations if funds correspond to compensation for shares of the target not included in the offer Transfer of shares of the target not included in the offer to the bidder CONCLUSION France has chosen to adopt the strictest rules provided for by the Directive. First, as is the case for many other States, France has opted for the 95% minimum threshold in terms of voting rights and share capital ownership, irrespective of the rate of acceptance of the preceding offer (the possibility was offered to allow the implementation of a Squeeze-Out in case of a 95% acceptance rate). Second, unlike some countries, France rejected the possibility to carry out Squeeze-Outs limited to one class of shares. Last, even if the Directive provides for the possibility to set a lower threshold (90%), France has chosen to stay with 95%. The level of this threshold is the topic of lots of discussion and many practitioners advocate to reduce it in order to facilitate the P to P transactions, help the restructurings and prevent the greenmail tactics for the sole purpose of obtaining the highest exit terms and raising the bids. Not surprisingly, French minority shareholders associations remain opposed to any easing of the current French Squeeze-Out rules. Page 6