Northwestern Journal of International Law & Business Volume 11 Issue 3 Winter Winter 1990 Guidelines for Mergers and Acquisitions in France David J. Berger Follow this and additional works at: http://scholarlycommons.law.northwestern.edu/njilb Part of the Banking and Finance Commons, and the International Law Commons Recommended Citation David J. Berger, Guidelines for Mergers and Acquisitions in France, 11 Nw. J. Int'l L. & Bus. 484 (1990-1991) This Article is brought to you for free and open access by Northwestern University School of Law Scholarly Commons. It has been accepted for inclusion in Northwestern Journal of International Law & Business by an authorized administrator of Northwestern University School of Law Scholarly Commons. Guidelines for Mergers and Acquisitions in France* David J. Berger** TABLE OF CONTENTS I. INTRODUCTION ........................................... 486 II. THE FRENCH COMPANY - Forms of Organization ........ 488 A. § 2.01. The French Corporation - SA ................ 488 1. Incorporation of an SA ............................ 489 a. Initial Articles of Incorporation ................ 489 b. Initial Capital ................................. 489 2. Corporate Governance Issues ....................... 490 a. Single-Tier System ............................. 490 i. Role of the Board of Directors .............. 490 ii. Officers .................................... 491 b. Two-Tier System .............................. 491 i. The Supervisory Board ..................... 492 ii. The Directorate ............................ 492 3. Liability of Officers and Directors .................. 493 4. Mandatory Disclosures ............................ 494 a. Information Available to Shareholders ......... 494 b. Additional Disclosures Required of Certain Companies .................................... 495 c. Additional Disclosures for Public Companies ... 495 B. § 2.02. The Limited Liability Company-SARL ...... 495 Substantial portions of this article are derived from L. SONSiNI & D. BERGER, GUIDELINES FOR MERGERS AND ACQUISITIONS IN EUROPE (1992) (forthcoming). ** Associate, Wilson, Sonsini, Goodrich & Rosati; B.A. Duke University (1982); J.D. Duke Uni- versity Law School (1987). The author thanks William Lee, of the Paris office of Sherman & Ster- ling, for his comments on an earlier draft, and Larry Sonsini for providing the guidance and leadership which made the article possible. Mergers and Acquisitions in France 11:484(1991) 1. Creation and Purpose of an SARL ................. 496 a. Initial Articles of Incorporation ................ 496 b. Initial Capital ................................. 496 2. Corporate Governance Issues ....................... 496 a. Managing Director ............................ 497 b. Shareholders .................................. 497 i. ShareholderAction by Written Consent ...... 498 ii. ExtraordinaryShareholder Meetings ........ 498 3. Liability of Officers ............................... 498 4. Comparison Between an SA and an SARL ......... 498 5. Converting the SARL into an SA .................. 499 C. § 2.03. Alternative Commercial Structures ............ 500 1. E URL ............................................ 500 2. SNC ............................................. 500 3. GIE .............................................. 501 D. § 2.04. Corporate Group Structures as a Barrier to the Acquisition Process .................................. 502 1. HardcoreShareholdings ........................... 502 2. Cross-Holdings.................................... 504 3. Use of Super-Voting Stock ......................... 504 4. Conclusion ........................................ 505 III. THE FRENCH SECURITIES MARKET ....................... 506 A. § 3.01. Regulatory Authorities in France ............. 506 1. The Stock Exchange Commission (Commission des Opdrations de Bourse or "COB")................... 506 a. Recent Legislation ............................. 507 b. Investigative and Enforcement Authority ....... 507 c. Duties and Responsibilities .................... 508 2. The Stock Exchange Council (Conseil des Bourses de Valeurs or "CBV") ............................. 508 B. § 3.02. The French Stock Exchanges .................. 509 1. Public M arkets ................................... 509 a. The Official Stock Exchange ................... 510 b. The Second Market ........................... 510 c. The Over-The-Counter Market ................. 511 2. Listing of Securities ............................... 511 a. Initial Public Offerings ......................... 511 b. Listing of Foreign Securities ................... 512 IV. THE MERGERS AND ACQUISITION PROCESS IN FRANCE .... 512 A. § 4.01. The Regulatory Framework ................... 512 Northwestern Journal of International Law & Business 11:484(1991) B. § 4.02. Disclosure Obligations for Shareholders and in Tender Offers ........................................ 514 1. GeneralDisclosure Obligationsfor Large Shareholders...................................... 514 a. Disclosure Upon Acquiring Ten Percent Ownership of a Company's Shares ............. 516 b: Disclosure Upon Acquiring Twenty Percent Ownership of a Company's Outstanding Shares. 516 2. Disclosure Obligations of the Bidder ................ 516 a. Disclosure to the CBV ......................... 516 b. Disclosure to the COB ........................ 517 3. Target Disclosure Obligations ...................... 518 C. § 4.03. The Substantive Law of Tender Offers ......... 518 1. Timing of the Offer and Competing Bids ........... 518 2. Mandatory Tender Offers .......................... 519 3. Defensive Maneuvers .............................. 520 V. CONCLUSION ............................................. 522 I. INTRODUCTION Recent developments in France, including the opening of French markets and the privatization of many of the companies nationalized in the early 1980s, have made France one of the leading countries for in- vestment by American companies seeking to enter Europe prior to the unified European market in 1992.1 France's liberalization of foreign in- vestment rules, as well as its lifting of foreign exchange controls, have further helped make French companies among the most attractive for both American and European investors.2 Reflecting the growing attractiveness of French companies, the 1 The 1992 program requires the 12 European Community ("EC") states- Belgium, Denmark, France, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, the United Kingdom, and Germany-to create a single community for the free movement of goods, persons, services and capital by December 31, 1992. For an analysis of 1992 on the United States see U.S. Int'l Trade Commission, Pub. No. 2204, The Effects of GreaterEconomic Integration Within the European Com- munity on the United States (1989). For a discussion of the historical bases for the 1992 program see Schildhaus, 1992 and the Single European Act, 23 INT'L LAW. 549 (1989); see also Berger, The European Markets Try to Coordinate, Unify ConflictingMerger Law, Nat'l L.J, Nov. 6, 1989, at 14, col. 1 (discussing the effect of 1992 on cross-border takeovers); Berger, EC To Lower Takeover Hur- dles, The Recorder, Apr. 10, 1990 (reviewing development of EC takeover market). 2 France was the third most popular target nation for cross-border acquisitions within the EC in 1989. See Translink, EUROPEAN DEAL REV. (1990) [hereinafter EUROPEAN DEAL REVIEW]. Some experts have estimated that between 3000 and 5000 French companies will change hands each year over the next 10 years. See "France," in InternationalM & A, INT'L FIN. L. REV. 41 (1991) [hereinafter France]. Mergers and Acquisitions in France 11:484(1991) Paris stock market (the "Bourse") has grown substantially in recent years, while successive French governments have taken a number of im- portant actions to modernize the French securities markets.' Paris has now become one of the leading stock exchanges on the European conti- nent, and the privatization (and subsequent listing on the stock market) of more than sixty previously nationalized companies, with a value in excess of $35 billion, has dramatically increased the Bourse's market cap- italization. The Bourse is now second, behind the London stock market, as the most active European market in terms of companies listed. The Bourse's domestic market capitalization has grown from less than $120 billion in 1987 to more than $190 billion by the end of 1988.' This figure is likely to increase in the future as more recently privatized French com- panies seek additional capital.5 Merger and acquisition activity within France has also grown dra- matically in recent years. While the bulk of this activity involved French companies as both buyer and seller, there were approximately 191 acqui- sitions of French companies by companies based outside of France in 1989, at a total disclosed value of more than $6 billion.6 French compa- nies have also grown more acquisitive of foreign companies in recent years, with such well known American companies as Pennwalt Corpora- tion, the European food businesses of RJR Nabisco, and Norton Com- pany becoming targets for French companies.7 The purchase by French companies of non-French assets has also increased demands by Ameri- cans and other foreigners for reciprocity when they attempt to acquire a French company, further pushing France to adopt even more favorable rules for foreign investment. These developments have made France an important topic for American businesses interested in taking advantage