July 29, 2015
The Autorité des marchés financiers (French financial markets authority) (the "AMF") recently released new rules advocating prior shareholder consultation with respect to major asset disposals by French listed issuers. These rules also clarify the regulator’s expectations in terms of market disclosure when major disposals or acquisitions are envisaged.[1]
Following several recent high-profile transactions, it was felt necessary to provide a more precise framework to authorize or supervise significant asset disposals by French listed issuers. Currently, disposals by listed issuers of significant assets generally fall outside the scope of French securities law, with the notable exception of mandatory buyout offers in case of sale of "all or most" of an issuer’s assets[2]. They are governed by corporate law only, and fall within the powers of the boards, so long as the transaction stays within, and does not significantly modify, the company’s corporate purpose.
In this context, the new position-recommendation provides for the following:
1. The AMF recommends that listed companies consult their shareholders prior to agreeing to certain major asset disposals
Prior shareholder consultation should apply to disposals (including under the form of puts and calls) of assets representing at least half of the issuer’s assets. This threshold is attained if at least two of the five following ratios have reached 50% over the preceding two financial years:
- turnover of the disposed assets compared to the consolidated turnover;
- transfer consideration for the disposed assets compared to the group market capitalization;
- net value of the disposed asset(s) compared to the total consolidated balance sheet;
- net operating income before tax generated by the disposed assets compared to the consolidated net operating income before tax;
- the number of employees attached to the disposed assets compared to the worldwide workforce of the seller group.
The timing of the prior consultation is not precisely defined in the recommendation and is left to the management and the boards depending on the circumstances and specificities of the transaction. Ideally, however, shareholders should be consulted prior to the entering into definitive agreements during an ordinary general meeting.
This recommendation notably aims at giving shareholders the ability to express their opinion when a company undergoes a major change while maintaining sufficient freedom for management to depart therefrom on a "comply or explain" basis.
2. A position reinforcing ongoing market disclosure obligations of listed companies with respect to the disposal of significant assets
The disposal of any significant assets must now be disclosed to the market no later than upon finalization of the definitive terms of the transaction. Specific information is due with respect to (i) the circumstances and motives which have led the transaction to being envisaged and launched and (ii) the context and the negotiation process.
This new rule applies to the disposal of significant assets, whether or not they meet the 50% test requiring shareholder consultation described under paragraph 1 above.
The AMF policy also contains further recommendations as to the precise content of market disclosure which, according to the French regulator, should describe with the appropriate level of detail (as determined by the issuer) the decision-making process which led to the transaction as well as the qualitative and quantitative criteria against which the transaction (and competing transactions) were assessed.
3. Best practice promotion for listed companies’ regarding processes applicable to the sale of significant assets
The AMF recommends that the boards and management teams of listed companies adopt decision-making processes in respect of significant disposals whereby they can ensure and demonstrate that such transactions are in line with the company’s corporate interest and have been assessed in an objective manner. Issuers’ policies shall also aim at preventing conflicts of interests, improving transparency and providing adequate information to the market.
4. The positions and recommendations presented in paragraphs 2 and 3 above apply to the acquisition of significant assets also.
On the opposite, shareholders’ prior consultation does not apply to significant acquisitions essentially because such obligation would have put French listed companies at a competitive disadvantage compared to foreign issuers. In any event, a majority of the significant acquisition transactions initiated by listed companies already imply the prior approval of shareholders when they require a share capital increase (either to strengthen the purchaser’s balance sheet or to allow a payment in shares or other securities or to finance the transaction).
[1] Position-Recommendation 2015-05 of June 15, 2015. The AMF defines its recommendations and positions and their respective effects as follows:
- Recommendations are proposals to adopt a behavior or comply with a provision that, in the Autorité des marches financiers’ view would make it easier to achieve the aims of the standards or general principles under its jurisdiction, it being specified that failure to comply does not in itself constitute a breach of regulations. However, complying with a recommendation generally contributes to the assumption that participants are acting in accordance with regulations.
- Positions are interpretations of legal and regulatory provisions that come within the Autorité des marches financiers‘ jurisdiction and explain how such provisions are applied to individual cases. They are published for the purpose of transparency and predictability.
[2] Article 236-6 of the AMF’ general regulations (Règlement général de l’AMF) enables the French regulator, which must be informed as soon as the controlling person of a listed company decides in principle to sell or contribute all or most of such company’s assets to another company, to evaluate the consequences of the proposed changes in light of the rights and interests of the holders of the company’s equity securities or voting rights and consequently decide whether a buyout offer should be made.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. For further information, please contact the Gibson Dunn lawyer with whom you usually work or any of the following lawyers in the Paris office by phone (+33 1 56 43 13 00) or by email (see below):
Ariel Harroch – [email protected]
Benoît Fleury – [email protected]
Judith Raoul-Bardy – [email protected]
Julie Cazalet – [email protected]
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