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Christophe Clerc Partner Marccus Partners 15 December 2008

European Takeover Law: The State of the Art Bocconi University Implementation of the Takeover Directive in France. Christophe Clerc Partner Marccus Partners 15 December 2008. Table of content. I – Context: shareholders, managers and employees II – Timeline of an offer

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Christophe Clerc Partner Marccus Partners 15 December 2008

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  1. European Takeover Law:The State of the ArtBocconi UniversityImplementation of the Takeover Directive in France Christophe Clerc Partner Marccus Partners 15 December 2008

  2. Table of content • I – Context: shareholders, managers and employees • II – Timeline of an offer • III – Specific issues : • A - Implementation of articles 9 and 11 of the Directive • B - Mandatory tender offers • IV – Compliance review • V – Open issues

  3. Entrepreneurs Shareholders (public companies) I - Context – Entrepreneurs and shareholders • Activity: « forecasting the psychology of the market » (J.M. Keynes) • Activity: « forecasting the prospective yield of assets over their whole life » (J.M. Keynes) • Interest solely in financial results and ROE • Commitment to a project • Because of diversification of portfolio, only superficial knowledge of each company • In-depth knowledge of the company • Proximity with stakeholders: need to take into account “negative externalities” • No link with stakeholders:“negative externalities” are disregarded • Long term investments funded with sound finance • Highly leveraged short term investments

  4. Traditional view Finance view(Jensen & Meckling) Team production view(Blair & Stout) Shareholders Capitalists (shareholders) Shareholders Board Employees Board Management Management Employees Employees • Key concepts: • capital / workforce - antagonist blocks • Key concepts: • « shareholder democracy » - board as representative of shareholders - alignement of interest - principal / agent (master / servant) theory • Key concepts: • team production - board and management as « mediating hierarchs » - hold-up problem Main views I – Context: Where should the management be?

  5. II – Timeline of an offer • General setting • a)Legal and regulatory framework • CMF. The Monetary and Finance Code (“CMF”) lays down the main principles and delegates power to the AMF. The law of April 1, 2006 has implemented the Takeover Directive 2004/25/EC of April 21, 2004. • AMF. Public takeovers are mainly regulated and supervised by the Financial Markets Authority (Autorité des Marchés Financiers) (“AMF”). • RGAMF. The main rules and principles governing public takeovers are set out in the AMF's General Regulation (Book II, Title III) (“RGAMF”). • b)Issues to be addressed • General principles • Role of sponsoring banks • Preparing an offer: stake building and preliminary agreements • The offer price • Filing of the offer and offer document and target’s response • Admission of the offer • Duration of the offer • Works council • Tendering the shares

  6. 2) General principles • The General Regulation sets out some key principles governing public offers, “to allow an offer to • be conducted in an orderly fashion in the best interests of investors and the market”, which are:1 • A level playing field between alternative bids. • Equal treatment of, and access to, information by holders of securities concerned by the offer. • Market transparency and integrity. • Fairness in transactions and competition. • 1 Article 231-3 RGAMF

  7. 3) Sponsoring banks • The sponsor. Tender offers are filed with the AMF by an investment service provider authorised to act as underwriter (prestataire de services d'investissement), acting as sponsor on behalf of the bidder.1 • Roles. The sponsor’s main roles are the following: • Advice. It advises the bidder on the tender offer. • Representative. It represents the bidder vis-à-vis the AMF. • Guarantee regarding irrevocability. It guarantees that the bidder's commitments in relation with the offer are irrevocable. Regarding cash tender offers, the sponsor guarantees the payment of the offer price to the shareholders tendering their shares to the offer. The guarantee is also applicable in the event the bidder withdraws its offer when it is not allowed to do so. • Guarantee regarding content. It guarantees the “content” of the offer. This implies that the sponsor should check that the offer, as structured, complies with applicable rules.2 • 1231-13 RGAMF • 2 CA Paris 10 mars 2006, M James v. DAB Bank AG

  8. 4) Preparing an offer: stake building and preliminary agreements • In order to secure the success of an offer, two strategies are often contemplated: pre-offer purchases of shares and agreements with significant shareholders whereby they commit to tender their shares into the offer. • a) Stake building • Stake building raises the following issues : • i) Insider trading • No general prohibition. Stake building in anticipation of an offer is not prohibited by specific laws or regulations, but it should be carefully assessed in light of the prohibition of insider trading. • Case law (Zodiac). It results from case law (the “Zodiac” case)1 that stake building is lawful when its aim is to secure the success of the offer. • In the Zodiac case, the bidder held 33.67% of the target shares prior to the offer and had acquired 0.7% additional shares. • In substance, the Court held the acquisition should be done with the intent to secure the success of the bid, not to save money through the acquisition of shares at a price lower than the bid price. • There is no “bright line” test (in the form of specific percentages, for instance) to decide whether a proposed acquisition is lawful or not. • 1CA Paris, 15 november 1994, Joly Bourse 1995

  9. ii) Declarations of significant participations • Thresholds. In the event any person, acting alone or in concert, comes to hold 5%, 10%, 15%, 20%, 25%, one-third, 50%, two-thirds, 90% or 95% of the target company's share capital or voting rights, disclosure requirements apply.2 • Timing. Notification of the AMF within five trading days. The AMF discloses this information to the public. The information must also be addressed to the company. • Sanctions. Failure to make the required disclosures result in:3  Automatic vote deprivation. Shares exceeding the relevant threshold are automatically deprived of voting rights until the appropriate disclosures are made and for a two-year period following the date of such correcting disclosures. Court decided vote deprivation. Courts may decide that all or part of the shares held by the defaulting shareholder are deprived of voting rights for a maximum period of five years, upon request from the AMF, the company's chairman or any of its shareholders. Fine.Maximum fine of EUR18,000. • 2Article L.233-7 I and 223-11 et seq RGAMF • 3Article L.233-14 CC

  10. iii) Declarations by company insiders • Full transparency. Company insiders (such as directors and officers) must report to the AMF, electronically and within five business days of execution, all acquisitions, disposals, subscriptions or exchanges involving the financial instruments of such company, as well as all transactions in related instruments.1 • iv) Declarations of intention • Principle. If a person crosses the 10% or 20% thresholds in any French company listed on a regulated stock market, it must file a declaration of intention with the company and the AMF, within ten trading days of such crossing. • Content. The declaration must state:  Its objectives or intentions for the following 12-month period. Whether it is acting alone or in concert with others Whether it will continue to purchase shares, request the appointment of new board members, or acquire control of the target. • Amendments. If the stated objectives change (which is permitted only in the event of significant changes in the environment, situation or shareholder base of the persons concerned), a new declaration, published in the same way, shall be made and sent to the company and the AMF.2 • Sanctions. Failure to make the required disclosures leads to the same deprivation of voting rights as applied to failures to disclose significant participations.3 • Legislative changes. Amendments to these rules are currently being contemplated. • 1Articles L.621-18-2 CMF and 223-22 RGAMF • 2 Article L.233-7 VIII CC • 3Article L.233-14 CC

  11. v) Rumors • “Put up or shut up”. Any person reasonably believed to be preparing a tender offer may be required by the AMF to declare its intentions within a deadline set by the AMF. Such intentions are communicated to the public by the AMF. • Specific applications. This rule may in particular be applied when the target shares are subject to significant and unusual changes regarding price or traded volumes. It is also applicable in the event of discussions between the issuers concerned or appointment of advisors with a view to preparing a public offer.4 • 4 Articles L. 433-5 CMF and 223-32 RGAMF. This rule comes in addition to the general provisions of article 223-6 RGAMF regarding the preparation of transactions.

  12. b) Commitments to tender • Definition. When significant shareholders exist, it is possible to enter with them into an agreement whereby they commit to tender their shares to the offer (subject to competing offers). • Filing requirements. Notification to the AMF within five trading days of execution (if they apply to 0.5% or more of the company’s capital or voting rights).1 • 1 Article L.233-11 CC

  13. 5) The offer price • Freedom. The price is freely determined by the bidder. • Reasonability test. A price that would be significantly disconnected from markets conditions could be objected to on the basis that the offer is not made bona fide and is contrary to the principle that an offer should be conducted in an “orderly fashion”. • Information. The price will be described in the offer prospectus (the “note d’information”).1 • Independent expert. In the event an independent expert has been appointed, and in order to determine whether the proposed offer complies with applicable laws and regulations, the AMF shall review the financial terms of the offer, in particular in view of the expert’s report and the reasoned opinion of the target’s board of directors.2 • Compulsory inclusion of a cash component. If the bidder has acquired more than 5% of the target company’s shares or voting rights during the 12 months preceding the offer for a cash consideration, such offer must provide that shareholders have a right to be paid in cash. • 1Article 231-18 RGAMF • 2Article 231-21 5° RGAMF • 3 Article 231-8 RGAMF

  14. 6) Filing the offer and the draft prospectus • Filing the offer. The offer is filed with the AMF by the sponsor. The offer letter includes:1 •  The bidder's objectives and intentions. • Details on the target's securities that the bidder already holds (alone or in concert) or that it may hold at its own initiative (including number, type and purchase date). • Information relating to the proposed price, the basis on which such price was determined, and the proposed conditions of payment. • Any condition attached to the offer. • Filing the prospectus. At the same time, the draft prospectus must be filed with the AMF. • Initial disclosure. Upon receipt of the offer documents and draft prospectus, the AMF publishes the summary terms of the offer and posts the draft prospectus on its website. In addition, the bidder must publish a press release in a national financial newspaper, summarizing the main terms of the offer and indicating that the offer is subject to the AMF's approval. • Subsequent disclosure. Any information in addition to that set out in the prospectus must be submitted to the AMF for review and also published in a press release.2 • 1Article 231-13 RGAMF • 2Articles 231-13, 231-14 and 231-16 RGAMF.

  15. Content of the draft prospectus. The draft prospectus must include the following:1 •  Terms of the offer.information relating to the terms of the offer including the proposed price, based on generally accepted objective valuation criteria, the characteristics of the target company and the market for its securities, the number and nature of securities proposed to be purchased, details of the number of target securities already held by the bidder (directly, indirectly or in concert, or that it may hold on its own initiative), as well as the date and terms on which such holdings were acquired, any condition attached to the offer by the bidder, the planned timetable for the offer, the financing the offer and its impact on the assets, business and earnings of the concerned companies. • Intentions.The bidder's intentions for the upcoming 12-month period regarding the concerned companies' financial and industrial strategy and the de-listing of the target's shares. • Labour policy.The bidder's intended labour policy, including any foreseeable changes in relation to the size and organisation of labour in accordance with the financial and industrial strategy outlined in the prospectus. •  Agreements.Information relating to any undertaking by target shareholders, any agreement or other undertaking providing for concert actions and any other agreement relating to the offer to which it is a party or of which it is aware. •  Reasoned opinion. The bidder's board of directors reasoned opinion regarding the benefits of the offer or its consequences to the bidder, its shareholders and employees. This statement must contain details of the board's vote, as well as the identity and opinion of any dissenting board member, if that member so requires. • Statements regarding accuracy. The prospectus shall bear the signature of the bidder, or of its legal representative, declaring that the information contained therein is accurate. The prospectus shall also include a declaration by the legal representatives of the sponsoring institutions as to the accuracy of the information about the presentation of the offer and the information used to appraise the proposed price. • 1 Article 231-18 RGAMF

  16. 7) Target’s response • i) The board’s reasoned opinion and the need for an independent expert • Reasoned opinion. The target's board of directors (or equivalent body) must give its reasoned opinion (avis motivé) regarding:  The benefits of the offer to the company, its shareholders and its employees, in a press release.  The voting conditions under which this opinion was obtained. Dissenting board members may require that their identity and position be mentioned.1 • Independent expert. If the proposed tender offer may create conflicts of interest within the board in a manner that may taint the objectivity of such reasoned opinion: - Designation: An independent expert will have to be designated by the target company.2- Report: The expert will prepare a report on the financial conditions of the offer, which shall in particular include an assessment of the target company and of the consideration, an analysis of the valuation work carried out by the bidder’s financial advisers and a statement regarding the fairness of the price.3 • 1Article 231-19 RGAMF • 2Article 261-1 RGAMF • 3Article 2 of Instruction 2006-08 of July 25, 2006

  17. ii) The target's response prospectus • Content: The target's response prospectus must contain, among other things:1 • Agreements.Any provision in an agreement entered into by the bidder, the target, any person acting in concert with them, or any of there respective shareholders, which may have an impact on the assessment or the result of the offer. If, at any time after the commencement of the offer, any such provision is entered into (and was, therefore, not mentioned in the target's response prospectus), it must be disclosed to the public by way of a press release.2 • Information. Information mentioned in Article L. 225-100-3 of the Commercial Code, updated where applicable as at the date of the offer, to the best of the company's knowledge3 • Independent expert. The independent expert’s report. In order to protect its legitimate interests, the target company may assume responsibility for not disclosing certain information in the independent appraiser's report, provided such non-disclosure is unlikely to mislead the public • Reasoned opinion.The reasoned opinion of the target's board on the benefits of the offer or its consequences for the target, its shareholders and its employees and the voting procedures by which this opinion was obtained. • Employees.If they are available and different from the above-mentioned opinion, comments by the works council, or, failing that, by staff representatives (délégués du personnel), or, failing that, by employees • Intent.The target's board members' intention as to whether they intend to tender their shares or not. • . • Statement. The response prospectus shall bear the signature of the legal representative of the target company, declaring that the information contained therein is accurate. • Timing. It must be filed with the AMF no later than five trading days after the offer has been filed with the AMF (20 trading days if there is an independent expert).4 • 1Article 231-19 RGAMF • 2Article 231-5 RGAMF • 3This information relates to certain facts or events that may have an impact on the tender offer. • 4Article 231-26 RGAMF

  18. 8) Admission of the offer • Timing. Generally, the AMF has ten trading days from the beginning of the offer period to determine whether the draft offer complies with applicable laws and regulations. However, when there is an independent expert, the statement of compliance is issued no earlier than five trading days after the target company has filed its draft reply document, i.e. about 25 trading days after the offer has been filed with the AMF. • Review. To determine whether the draft offer complies with applicable laws and regulations, the AMF shall examine: •  The aims and intentions of the offeror. • Where applicable, the type and characteristics of and market for any securities proposed in exchange. • The conditions stipulated by the offeror. •  The information in the draft prospectus. • If there is an independent expert, the financial terms of the offer, notably with respect to the independent expert’s report and the reasoned opinion of the Board of Directors. • Amendments. The AMF may ask the offeror to modify the draft offer if the AMF believes that it may be in breach with applicable legal and regulatory provisions, and in particular the general principles referred to in article 231-3 of the RGAMF.1 • Amendment approval. If the proposed offer complied with applicable laws and regulations, the AMF issues a statement of compliance that also constitutes an approval of the prospectus. • 1Articles 231-20, 231-21, 231-23, 231-26 RGAMF

  19. Disclosure. Once the AMF has granted its statement of compliance, the approved prospectus (or a summary thereof) must be published in a financial newspaper with nationwide circulation. This must be done before the opening of the offer and no later than two trading days after the issuance of the AMF statement.1 • Other information: The following rules apply: - Disclosures about the legal, financial, accounting and other characteristics of the offeror and the target company, which must meet the content requirements specified in an AMF instruction, shall be filed with the AMF and made available to the public no later than the day before the offer opens. - The reports by the statutory auditors of the offeror and the target company must also be filed with the AMF under the same conditions. - No later than the day before the offer opens, the offeror, the target company and at least one of the sponsoring institutions must file a declaration certifying that all the above- mentioned information has been filed and has or will be disseminated within the above- mentioned timeframe.2 • 1Article 231-27 RGAMF • 2Article 231-28 RGAMF

  20. 9) Duration of the offer • Initial duration. The duration of the offer is twenty-five trading days, which may be extended to no more than thirty-five trading days. • Extension. The duration may also be extended in the event of competing offers; however, after 10 weeks, the AMF may apply specific procedures to bring the offer to an end.1 • Reopening. If the offer is successful, it shall be re-opened within ten trading days of publication of the outcome. The AMF publishes the timetable for the re-opened offer, which must last at least ten trading days. This signals the beginning of a new offer period, which terminates when the outcome of the offer is published.2 • Initial offer. When there is an independent expert, the offer opens on the day after distribution of the approved response prospectus. • 1Articles 231-32, 232-2, 232-12 and 232-13 RGAMF • 2Article 232-4 RGAMF

  21. 10) Consultation of works council. • Process. The target's works council (comité d'entreprise) must be informed of the takeover process and consulted, as follows:1 •  First meeting. As soon as the bidder has filed the offer documents with the AMF, the target's chief executive officer must immediately convene a meeting to inform its works council about the offer. During the meeting, the target's works council can determine its position on the recommended or hostile character of the offer and decide whether to hear the bidder at a • second works council meeting. •  Second meeting.Upon request of the works council, an authorised representative of the bidder must attend the works council's meeting to receive its comments and answer its questions regarding the offer, no later than 15 calendar days following the publication of the prospectus. • Sanction. Non-attendance by the bidder's representative at the target's works council meeting may result in the target's shares (acquired or to be acquired by the bidder) being deprived of voting rights. Criminal sanctions are also applicable. • 1Article L.432-1 CT

  22. 11) Tendering shares into the offer • Right to withdraw. Orders of persons wishing to tender their securities under the standard procedure can be cancelled at any time until the closing date of the offer and are centralized by Euronext Paris. • i) Share purchases during the offer • By the bidder. The bidder may purchase shares on the market during a cash offer period, as long as the offer does not provide for a minimum condition.1 • By the target. The target company and persons acting in concert with it may not trade in the market, directly or indirectly, in the equity securities or own equity instruments of the target company. Where the offer is to be settled entirely in cash, the target company may proceed with a share buyback program if the resolution adopted at the shareholders' meeting that authorized the program has expressly provided for this. If this is a measure designed to frustrate the offer, its implementation must be approved or confirmed by the shareholders' meeting.2 • Financial advisers and sponsors. The above-mentioned rules are applicable to own-account trades made by institutions advising the offeror or the target company or sponsoring the offer, as well as by any company in the same corporate group as any of such institutions. However, an advising or sponsoring institution is permitted to: •  trade in the securities concerned by the offer as part of its arbitrage, market-making or position-hedging activities, to the extent that such trades are made in the ordinary course of business and the staff, resources, objectives and responsibilities pertaining to them are separate from those involved in the offer; •  trade in the market if the offeror has given the institution a mandate to hedge a risk it has taken in connection with the offer. • 1Article 232-14 RGAMF • 2Article 232-17 RGAMF

  23. III – Specific issues • A)Articles 9 and 11 of the Directive • France has implemented Article 9 of the Takeover Directive, imposing a “neutrality obligation” on boards during takeover bids, but is doing so with a major carve-out: the reciprocity rule (Article 12 of the Directive). • 1. The neutrality obligation • Principle. The “neutrality obligation” (or “passivity rule”) prohibits the board of directors2 during the bid to take “any measures which could frustrate a bid, other than seeking alternative bids”, without the approval by the general meeting of shareholders during the bid. The only exemption from the neutrality obligation is the search for white knights. • Suspension. Any authorization granted by the general meeting to the board of directors is suspended during the bid, to the extent the authorized measure could frustrate the bid. • Confirmation. Any decision made by the board of directors prior to the bid, which is not “partly or fully implemented” and which “does not form a part of the normal course of the company’s business,” must also be ratified or confirmed by a general meeting held during the bid. • 2 The neutrality obligation also applies to the chief executive officers and the deputy chief executive officers.

  24. 2. The reciprocity principle • A significant exception. There is a major carve-out to the neutrality obligation which is based on the reciprocity exception (article 12 of the Directive). • Principle. This exception is applied as follows: French target companies are exempt from the neutrality obligation if the bidder itself is not subject to the neutrality obligation or is controlled by an entity that is not subject to this obligation. “Control” is defined in Section L.233-16, II and III of the French Code de Commerce; it includes, inter alia, joint control and contractual control. • Several bidders. If several companies launch a bid, it is sufficient that one of them is not subject to the neutrality obligation for the French company to be able to use the reciprocity exception (except, of course, if the only bidders that are not subject to the neutrality obligation are actually acting in concert with the target).

  25. 2. The reciprocity principle (cont) • “Equivalent measures”. When determining whether a bidder is not subject to the neutrality obligation, the AMF will take into account any measure “equivalent” to the neutrality obligation. • Examples. A quick survey of major legal systems shows that the carve-out would typically be applicable, for example, to listed bidders organized under the laws of the state of Delaware or Germany, non-listed bidders (which are deemed not to be subject to the neutrality obligation) and bidders controlled by any of them. On the contrary, bids by British listed companies should typically be considered subject to the neutrality obligation.

  26. 3. Main defensive measures available to French listed companies • a) "Permanent" defensive measures • “Permanent measures”. Some defensive measures do not require shareholders’ approval or require only a single approval. • Examples. Such defense mechanisms, which are always available (irrespective of the application of the reciprocity rule) include, for example: • - specific types of companies (such as partnerships limited by shares) • - shareholder agreements • - employee shareholding • Voting caps are no longer available.

  27. b) Other defensive measures • “Temporary" defenses. Such defenses available to French listed companies depend on whether the reciprocity exception is applicable. • When the reciprocity exception is not applicable (for instance, when the bidder is a British listed company), the neutrality obligation fully applies: the board of directors may not take any initiative to defend the target company during the bid without the prior approval from the general meeting of shareholders held during the course of the bid. In order to make this principle effective, a decree will soon be adopted to allow for a general meeting of shareholders to be called on short notice during the bid. • When the reciprocity exception is applicable (for instance, when the bidder is a Delaware company), the target’s board is exempt from the application of the neutrality obligation, provided that any measure that may be taken by the board of directors during the bid must have been expressly authorized in relation to the possibility of a public offer by the general meeting of shareholders during the eighteen months preceding the date of the bid.

  28. c) The Tender Offer Warrants (TOWs) • 1. A major innovation • The TOW is one of the major innovations of the law implementing the Directive. • Until the implementation of the new law, the French regulatory authority was opposed to any mechanism whereby the target company could unilaterally increase the price of the offer, whether directly or indirectly (see the Sanofi/Aventis “Plavix warrants” precedent). • Any US-style rights plan was therefore prohibited, even if it had received the approval of the shareholders. • The introduction of the “bons d’offre” (TOWs) into French law has changed this rule.

  29. 2. Comparison with US-style rights plans • Origin. The TOWs are inspired from US-style rights plans. • Core principle. Like the rights plans, the TOWs are based on a threat of dilution of the acquirer’s equity holding and voting interest in the target company. This threat is meant to act as a deterrent, thereby leading the parties to negotiate the terms of the offer.

  30. There are several differences between US-style rights plans and the TOWs. • a) Shareholders’ approval • Requirement. The TOWs must always be approved by the general meeting of shareholders. • Timing. The vote of the general meeting of shareholders may take place prior to the bid, for example, during the annual general meetings. The authority granted to the board of directors to issue TOWs is valid for a maximum period of eighteen months and may only be implemented when the reciprocity exception is applicable. The vote may also take place during the offer period, in which case the authority may be used against any bidder, irrespective of whether the reciprocity exception is applicable or not. • Maximum dilution. The general meeting of shareholders sets the maximum amount of the capital increase that may result from the exercise of the TOWs.

  31. Majority. The necessary vote required to approve the issuance of the TOW is the simple majority of shares present in person or by proxy. • Quorum. The required quorum is 20% of all shares, provided that, if such quorum is not met, no quorum will be required during a second meeting called on the same agenda.

  32. b) Timeline • Announcement. Typically, the TOWs should not be issued immediately after they have been approved by the shareholders’ meeting. On the contrary, French law authorizes the target company to wait until the last day of the offer to make public its intention to issue the TOWs. The target company is thus authorized to have in hand all the bids prior to making a decision. • Withdrawal of the offer. In the event the target company proceeds with such an announcement, the bidder will be allowed to withdraw its bid, with the prior consent of the French regulatory authority. • Dilution. If the bidder does not request the withdrawal of its bid, it would then expose itself – and in that case only – to the issuance of TOWs and its corresponding dilutive effect.

  33. c) Equality among shareholders • Equality. If Warrants are issued, they must be allocated free of charge to all shareholders prior to the announcement of the results of the bid. • Shareholders. All shareholders, whether or not they tendered their shares in the offer, will receive the TOW. • Bidder. The bidder will also have a right to this allocation for all of the shares that it holds prior to the announcement of the results, which is exclusive of any shares tendered to the bidder pursuant to the offer.

  34. d) Other conditions • Strike price. Typically, the exercise price of the TOWs should be decided by the board of directors when the TOWs are issued. It should be set at any amount between the par value and the listed price of the shares. • Listing. Whether the TOWs should be listed (and when) will be decided by the board of directors when the TOWs are issued. • e) Safe harbor • Legal protection. The TOWs are not the only method for the board of directors to intervene during an offer. However, as they are specifically regulated by law, the TOWs form a robust mechanism. • Interest. Other mechanisms may be considered, but their validity may be less certain and they are likely, in most cases, to require a two-thirds majority vote by shareholders. This would not be sensible, as a simple majority of shareholders should be able to take this decision.

  35. 3. Development of the TOWS • Status. Between 10 and 20 listed companies vote TOW plans each year. • No preclusion of offers. TOWs authorize the board to negotiate. They do not preclude offers (see SAP/ Business Objects). • Specific interest: correction of information asymmetry.

  36. Illustrative Timeline 35 TD 9 TD 5 TD 9 TD GM Opening of the Offer (D) No more counter-offers (D+30) End of the Offer (D+35) Result of the Offer (D+44) Settlement of the Offer (D+47) Announcement: Issuance of TOWs (D+31/D+35) Issuance of TOWs Board of the Target Possibility to withdraw the offer Record date for TOWs

  37. B)Mandatory offers 1. Triggering event • Principle. • 1/3 of voting shares or voting rights (the threshold is under discussion). - Temporary breach allowed: limited to 3%, maximum period of 6 months, no votes may be cast during this period by the investor in breach • Other cases. Offers are also mandatory in the following cases: • Between 1/3 and 50%: if increase of more than 2% during 12 months • Acquisition of indirect control • Exemptions. Exemptions in certain cases, such as: - Certain changes in concert situations. - Financial difficulty (if approved by GM). - Merger approved by GM. - Intra-group sales.

  38. 2. Price • Price. • Highest price paid in the last 12 months by the offeror. • Exception: If no transaction by the offeror, the price is based on generally accepted valuation criteria. • Exceptions to the 12 month rule. Exceptions are applicable in the following cases: • If events liable to materially alter the value of the securities concerned occurred in the twelve-month period before the draft offer was filed. • If the target company is in recognized financial difficulty. • If the price mentioned in the first paragraph results from a transaction that includes related items involving the offeror, acting alone or in concert, and the seller of the securities acquired by the offeror over the last twelve months.

  39. 3. Specific issue • Who should decide that the mandatory offer should be launched? • Example: in a general meeting, shareholders acting in concert represent more than the triggering threshold but have not launched an offer (see Eiffage / Sacyr case). • Sanction for not launching an offer is deprivation of voting rights above the triggering threshold. • Solution. • If the violation is clear, the voting rights of the defaulting concert parties should be suspended. • Otherwise, this is a matter for the courts to decide.

  40. Article 3.1. - General principles IV – Compliance review

  41. Article 4 – Supervisory authority and applicable law

  42. Article 5 – Protection of minority shareholders, the mandatory bid and the equitable price

  43. Article 6 – Information concerning bids

  44. Article 7 – Time allowed for acceptance Article 8 – Disclosure Article 9 – Obligation of the board of the offeree company

  45. Article 10 – Information on companies as referred Article 11 – Breakthrough

  46. Article 12 – Optional arrangements Article 13 – Other rules applicable to the conduct of bids Article 14 – Information for and consultation of employees' representatives

  47. Article 15 – The right of squeeze-out Article 16 – The right to sell-out Article 17 – Sanction

  48. V – Open issues 1) How should we view tender offers? a) Global picture or narrow view? • Tender offer as a standalone financial mechanism. Stated purposes: improved efficiency of firms through “disciplinary effect” and external growth. • Tender offers as a piece of the overall economy puzzle. Interaction between tender offer mechanisms and other economic mechanisms – see for instance “institutional complementarities” in Germany (long term financing through banks, specific investments in human capital, consensus formation through co-determination, strong industrial specialization requiring long-term investments, etc.). b) Efficiency of M&A? • Efficiency of M&A as a corporate growth mechanism. This efficiency must be assessed before it is decided whether legislative action should be taken with a view to relaxing M&A rules. • Specific studies on the impact of hostile M&A need to be reviewed and updated.

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