Corporate M&A 2024 Comparisons

In 2023, the French M&A market experienced a material slowdown mainly due to the combined effect of rising inflation and interest rates and geopolitical instability across the world. This translated into a decline in both the volume and value of M&A transactions, with a total number of 1,859 deals with a combined deal value of EUR74.6 billion, falling by c. 14% in volume and 40% in value compared to 2022 (source: Mergermarket).

In 2023, mid-cap and small-cap M&A segments remained the most active, with a more limited private equity presence compared to previous years. However, there were several very large private equity and M&A transactions, such as the EUR4.6 billion acquisition of Bolloré Logistics by CMA CGM, and the Eutelsat/OneWeb transaction, which closed in 2023.

Despite the uncertain economic environment, France continues to improve its economic attractiveness for foreign investments. For the fourth consecutive year, France remains the leading country in Europe for foreign investments, with 1,815 investments made by overseas investors.

IPO activity in France remained quiet in 2023, with only six IPOs launched within the year (half as many as in 2022).

Increasingly Complex and Lengthy M&A Processes and a More Buyer-Friendly Market

Over the last 12 months, many market players have noted an evolution towards a more buyer-friendly market and more complex and lengthy M&A processes. Indeed, the unstable economic environment has led buyers to be more cautious in their approaches to price and drafting legal protections, which has translated into:

• less competitive processes and more time granted to potential buyers to carry out in-depth due diligence;
• lengthy negotiations and complex mechanisms (eg, earn-outs) to bridge the value gap between sellers’ and buyers’ expectations;
• more extensive representations, warranties and specific indemnities, backed by warranty and indemnity (W&I) insurance policies in an increasing number of cases; and
• increased negotiation of material adverse change clauses and conditions precedent, even though these may eventually be removed.

Alternative Exit Strategies and Divestments

In a less robust economic environment, corporates tend to focus on core business and high-profit or high-growth activities. As a result, certain groups are seeking to divest non-core business assets to unlock value using other forms of transactions, such as spin-offs and carve-outs.

Recent high-profile examples of such strategies in France include the announcement by Sanofi of its plans to separate out its consumer health business, and the completion in February 2024 by Sodexo of the spin-off and IPO of Pluxee, Sodexo’s benefit and reward services business.

Increased Scrutiny From Regulatory Authorities

In 2023, M&A transactions continued to face closer regulatory scrutiny. Uncertainty about regulatory timing and outcomes is currently one of the main hurdles to M&A activity in France.

Competition authorities have tended to accelerate their review of transactions that do not raise particular concerns. However, the investigation of more sensitive transactions appears to be taking longer, with increased use of suspensions and extensions. These lengthy timelines have resulted in more uncertainty for the parties to those transactions.

In December 2023, the French government tightened the French foreign direct investment (FDI) regime by:

• extending the list of sensitive sectors; and
• permanently reducing the investment threshold in a listed company that triggers the requirement for a non-EU investor to obtain an FDI authorisation from 25% to 10% of the voting rights. The 10% threshold was initially introduced as a temporary protective measure in the context of the COVID-19 pandemic.

Although vetoes remain very rare, the French government vetoed one transaction (the acquisition of the French subsidiaries of Velan, following which Flowserve abandoned its plan to acquire Velan worldwide).

In addition, the European Union’s (EU) new Foreign Subsidies Regulation (FSR), which came into force in July 2023, enables the European Commission (EC) to review financial contributions granted by non-EU governments to companies active in the EU, to address competition distortions within the EU. The FSR may have a significant impact on large M&A transactions by requiring new filings affecting the timeline of the transaction and may, in some cases, lead to the imposition of remedies or even prevent transactions from being cleared by the EC.

Major Distressed M&A Transactions

Major distressed M&A deals have also been a key feature of M&A activity over the past 12 months, as illustrated by:

• the acquisition by Caisse des dépôts et Consignations, a French governmental financial institution, of a controlling stake in Orpea, a distressed French nursing home group listed in France; and
• the acquisition of control of the mass-market retail group Casino by a consortium led by Daniel Kretinsky as part of Casino’s restructuring plan.

Increase in Post-M&A Transaction Disputes

To compensate for increasingly limited contractual protections, purchasers are bringing more post-closing claims on the grounds of fraud (dol) or failure by sellers to comply with their pre-contractual disclosure duties.

In 2023, M&A activity was concentrated on the following industries: TMT; consumer; pharma, medical and biotech; business services; transportation; and real estate.

TMT remained the most active M&A sector in 2023 both in value and in volume, followed by France’s consumer sector in terms of value. This has been partly driven by the restructuring of the French mass-market retail group Casino.

The French sectors that have been the most affected by the COVID-19 pandemic are: accommodation and food services; information/communication; real estate/construction; and wholesale and retail trade.

In private transactions, a share sale remains the main way to acquire a company in France. Asset sales are less common as they are usually considered more complicated to implement and have higher tax burdens. They are nevertheless typically used in smaller transactions, eg, the sale of a retail shop.

Public transactions typically include a tender offer, which may be initiated at various stages of the transaction depending on the circumstances:

• if the target has one or more controlling shareholders, purchasers typically try to secure the acquisition of the controlling block of target shares and subsequently launch a mandatory tender offer (see 6.2 Mandatory Offer Threshold);
• in targets with a large shareholder base, purchasers generally launch a voluntary tender offer after having negotiated (where appropriate and possible) the binding acquisition of block(s) of shares (not triggering a mandatory tender offer) and/or undertakings to tender shares to the offer from key shareholders (see 6.11 Irrevocable Commitments);
• if the offer is “unsolicited” or “hostile”, which is less common, it is carried out by way of a voluntary offer.

Business combinations can also be carried out through “legal” mergers (ie, where, by operation of law, all the assets and liabilities of the target are transferred to the absorbing company, the shares in the target are exchanged for shares in the absorbing company, and the target ceases to exist) or by contributions of shares or assets. This type of transaction is less common, as it usually requires approval by an extraordinary general meeting of the shareholders, which can be challenging to secure in listed companies.

The main regulators for M&A activity in France are:

• The Autorité des marchés financiers (AMF), which is the independent public authority responsible for, among other things, regulating the financial market and ensuring that investors are properly informed. With respect to M&A activity, the AMF is in charge of regulating and clearing public tender offers and squeeze-outs, as well as clearing the documentation of listed companies relating to IPOs, capital increases, mergers, demergers, spin-offs and contributions.
• The Autorité de la concurrence, which is the independent administrative authority that enforces competition law and regulates M&A activity from a competition perspective (see 2.4 Antitrust Regulations).
• The Ministry of Economy and Finance, which monitors M&A activity affecting the national interests of France and must grant prior authorisation to M&A transactions that involve foreign investors and sensitive activities (see 2.3 Restrictions on Foreign Investments).

Furthermore, public authorities regulate specific industries, such as banking, insurance, energy, telecommunications, media and health. These sector-specific regulators can impose rules, standards or approvals for M&A transactions that involve regulated entities or assets.

France has established a foreign investment control regime that aims to protect France’s national interests and security, especially in sensitive sectors such as defence, energy, telecommunications, health and media. The regime applies to investments made by non-French investors (ie, non-EU and non-EEA (European Economic Area) investors as well as EU and EEA investors) that involve sensitive sectors.

The sensitive sectors have extended over the years and include sectors such as defence and national security, but also sectors such as energy, gambling, transport, public health, food security, water, the press, and R&D on critical technologies (eg, AI, cybersecurity, biotechnologies, semiconductors).

The regime requires prior authorisation from the French Ministry of Economy and Finance for certain types of investments in these sectors, such as:

• acquiring control of a French entity, directly or indirectly, by any means (eg, merger, acquisition, joint venture);
• acquiring all or part of a branch of activity of a French company; and
• crossing certain thresholds of voting rights in a French company by non-EU/EEA investors (25% for private companies and 10% for listed companies).

The Ministry has the power to approve, reject or impose conditions on the proposed investment based on a review of its impact on public order, public security or national defence. The review process can take up to three and a half months, or longer in exceptional cases. The Ministry can also intervene after the investment is completed if it finds that an investor has breached its obligations or provided false or incomplete information. The regime also imposes reporting and information obligations on investor(s), both before and throughout the investment.

If the parties to a planned business combination meet certain turnover thresholds, the proposed business combination must be cleared pursuant to applicable merger control regulations prior to the completion of the transaction (subject to certain very limited exceptions). In France, antitrust regulations are enforced by the French Competition Authority and the EC, depending on the size and scope of the proposed transaction.

Subject to certain exceptions for retail and overseas territories, the remit of the French Competition Authority is engaged where:

• the combined worldwide turnover of the parties exceeds EUR150 million;
• at least two of the parties have individual turnover in France exceeding EUR50 million; and
• the proposed business combination does not fall within the EC’s jurisdiction.

If the proposed transaction concerns the territory of several member states and the turnover of the involved parties is very large (particularly if the global turnover is in excess of EUR5 billion for all parties to the transaction and EUR250 million is generated within the EU by at least two of the groups concerned by the transaction), the EC has jurisdiction. The EC may decide to refer the transaction back to the French Competition Authority if the latter is best placed to review the case.

Applicable procedures with the French Competition Authority and the EC are quite similar. After an informal pre-filing phase during which the acquirer has preliminary discussions with the relevant authority, a two-phase procedure follows. In the first phase, the relevant authority may decide whether to clear the transaction or to open an in-depth investigation. In the second phase, the relevant authority conducts a more detailed analysis of the potential effects of the transaction on competition, taking into account factors such as market shares, barriers to entry, buyer power, efficiencies, remedies and/or commitments. The competent authority can then either authorise the transaction, with or without conditions, or prohibit it if it finds that the transaction would create or strengthen a dominant position or significantly harm competition. Most transactions in France are cleared in the first phase.

Over the past few years, gun-jumping practices have been under particular scrutiny by the French Competition Authority, with several high-profile cases that led to the authority issuing large fines.

In addition to being a key focus of due diligence in acquisitions, labour law regulations must also be taken into account for the timing of a proposed M&A transaction in France.

In terms of timing, the works council (comité social et économique) of the target must be informed and consulted on a proposed transaction before any binding agreement is entered into where such transaction: (i) involves the transfer of all or part of its business; or (ii) relates to the sale of a large interest in the target, to the extent that the management of the target is aware of the proposed transaction. The works council of the bidder (if any) would also need to be informed and consulted.

The information and consultation process may last up to three months, depending on whether the works council requests the involvement of an independent expert and whether the target is a group with “local works councils” etc. In any event, the works council’s opinion does not bind the parties to the proposed transaction, so the acquisition can be signed and completed even where a negative opinion is given by the works council.

In the case of tender offers for listed companies (not controlled by the bidder), the works council of the target is informed immediately after the tender offer is launched (or upon the request of the bidder, announced), and the works council then has one month to issue its opinion. In that case, the works council may require the bidder to participate in a meeting to further explain its intentions. The bidder will be deprived of its voting rights as long as it has not attended such meeting.

The influence of works councils must not be underestimated as they may initiate proceedings to obtain more time to render their opinion and/or effectively suspend a transaction if they consider that they have not received the appropriate information or have not been appropriately informed and consulted (as was the case in the Suez/Veolia case).

Finally, the employees of small to medium-sized companies must be informed individually of the proposed company sale and have the right to make an offer for the company within the two following months. The proposed transaction cannot be signed prior to the expiration of such period, except where all employees have individually waived their right to make an offer to acquire the company.

See 2.3 Restrictions on Foreign Investments.

Veolia’s public offer for Suez in 2020/2021 led to three major AMF decisions (which were not tested before French courts):

• the AMF clarified the notion of a pre-offer period, with a distinction being made between the publication of the terms of an offer (marking the start of the pre-offer period) and the publication of the intention to file an offer subject to certain conditions being met (ie, in the case at hand, Engie agreeing to sell a 29.9% block of Suez shares to Veolia), which does not trigger the start of the pre-offer period;
• the AMF confirmed that the offeror may change its previously announced intentions in the context of an offer, where such change is justified by serious and objective reasons (no pre-defined list of events); and
• the AMF reiterated that takeover defences must comply with the guiding principles of public offers.

The below are changes or potential changes affecting transactions:

• the application of the new foreign investment control regime (see 2.3 Restrictions on Foreign Investments); and
• a new law has been proposed to improve the attractiveness of the Paris financial market, including measures such as multiple voting rights for listed companies and softening the constraints applicable to capital increases with no preferential subscription rights.

Any target share acquisition prior to launching a takeover offer must be thoroughly reviewed to ensure that it does not qualify as insider dealing or market manipulation within the meaning of the European Regulation of 16 April 2014 on Market Abuse (MAR).

Furthermore, MAR has clarified that the acquisition or disposal of instruments by a person while such person, by definition, has knowledge of such potential acquisitions or disposals, does not constitute in itself insider dealing, provided however that there are no illegitimate reasons behind those transactions. Before MAR entered into force, case law considered that stakebuilding to reduce the overall cost of the acquisition would not be permitted. Therefore, stakebuilding before launching an offer might be implemented in very limited circumstances.

Any person acting alone or with concert parties is required to disclose to the target and the AMF within four trading days, where the following thresholds in the target are crossed (directly or indirectly and in either direction): 5%, 10%, 15%, 20%, 25%, 30%, one-third, 50%, two-thirds, 90% and 95% of the share capital or voting rights. Such person must disclose, among other things, the number of shares and voting rights they hold. The AMF makes such information public.

To determine whether a threshold has been crossed, specific legal computation/assimilation rules apply. For example, the following must be added to the shares and voting rights held by a disclosing party: shares (and voting rights) held by its concert parties and/or its controlled entities; existing shares (and voting rights) that it or any of its concert parties or controlled entities may acquire at its sole discretion pursuant to a financial instrument or agreement; existing shares (and voting rights) underlying a physically settled or cash settled instrument or agreement giving an economic exposure similar to the holding of shares; and shares (and voting rights) held by any person with whom the disclosing party has entered into a temporary sale agreement.

Failure to make the required disclosures results in the automatic deprivation of the voting rights relating to the shares exceeding the relevant threshold until the appropriate disclosures have been made and for a two-year period thereafter. Other sanctions may apply depending on the circumstances.

Listed companies usually use the option to impose additional reporting obligations under their articles of association. The additional fractions of the share capital or voting rights to be reported may not be less than 0.5%. Articles of association usually specify that the same computation rules apply as those applicable to the reporting of legal thresholds.

Furthermore, listed companies may impose limitations on the total number of voting rights per shareholder that may be exercised in general meetings, thereby deterring stakebuilding. This option is less frequently used.

Finally, stakebuilding may be impeded by specific sector regulations or foreign investment regulations, which require prior authorisation to be obtained for shareholdings as low as 10% of the share capital.

French law allows derivatives transactions subject to compliance with MAR.

In addition, derivatives are subject to threshold disclosure obligations and a declaration of intent (see 4.5 Filing/Reporting Obligations and 4.6 Transparency) where such derivatives give to the holder: (i) the possibility to acquire existing target shares or voting rights at its sole discretion; and/or (ii) an economic exposure (whether through physical or cash settlement) similar to the ownership of existing target shares. The instruments that are subject to this obligation include, among others, contracts for difference, share swaps, and financial instruments exposed to a basket or indexation of shares. However, it is important to note that derivatives referred to in (ii) above are not taken into account when determining whether a mandatory tender offer threshold is crossed.

In addition to the reporting obligations outlined in 4.2 Material Shareholding Disclosure Threshold and 4.4 Dealings in Derivatives, the reporting requirements pertaining to derivatives are governed by the European Market Infrastructure Regulation, which aims, among other things, to enhance the transparency of derivatives markets. Under such regulation, counterparties must report each transaction within one trading day to a trade repository, as well as amendments and other events, such as novation or early termination, occurring during the term of a contract.

Furthermore, derivatives may also be subject to short selling reporting obligations to the AMF.

Where a person crosses upwards the thresholds of 10%, 15%, 20% or 25% of the target’s share capital or voting rights (in accordance with the computation rules described in 4.2 Material Shareholding Disclosure Threshold), such person must make a disclosure to the target and the AMF within five trading days of the date of crossing the relevant threshold, including the following information:

• whether it is acting alone or in concert;
• whether it intends to continue or stop its acquisitions, and whether it intends to acquire control of the target;
• the means of financing the acquisition;
• its strategy vis-à-vis the target and the transactions it contemplates implementing (eg, merger, sale of assets, changes to the articles of association, new issuance, delisting);
• its intentions regarding the settlement of the derivatives it has entered into (if any);
• any temporary disposal agreement; and
• whether it will seek to appoint new members to the target board.

The AMF will then make such information public.

If the bidder’s stated intentions change within the aforementioned six-month period, a new reasoned declaration must be sent immediately to the target and the AMF (which opens a new six-month period during which any change in intentions must be disclosed in the same way). A change in intention should only occur if it can be justified by objective and credible reasons which are not at the bidder’s sole discretion.

Under French law, the two following rules are relevant in the context of the disclosure of a transaction:

• Any listed issuer (which may be the bidder, the target or a potential seller) has a general obligation to disclose any inside information to the market (ie, information which is precise, not public and, if made public, likely to have a significant effect on the listed share price). However, such issuer may postpone the disclosure of such information where immediate disclosure would prejudice its legitimate interests, the delay in disclosure is not likely to mislead the public and confidentiality can be ensured. When such delayed information is eventually published, a specific notification must be made to the AMF.
• Any person that prepares for its own account a financial transaction likely to have a significant effect on the listed share price or the situation and rights of shareholders must disclose the characteristics of such transaction to the public as soon as possible. However, if confidentiality is temporarily necessary for carrying out the transaction and if this person can ensure confidentiality, it may take the decision to postpone the disclosure of such information.

As a practical matter, the parties usually seek to disclose the transaction by way of a press release when the appropriate documentation is signed, ie, an exclusivity agreement where the works council needs to be informed and consulted before a binding agreement is entered into (see 2.5 Labour Law Regulations) or, in other cases, a binding agreement (eg, share purchase agreement or tender offer agreement).

Appropriate measures, including entering into confidentiality agreements, must be taken to ensure confidentiality of the discussions. In the case of a leak, the relevant party(ies) must immediately issue a press release to inform the public of the existence of the discussions and, depending on the content of the leak, give detail on the proposed transaction.

Market practice on timing of disclosure does not differ from legal requirements. However, there is room for interpretation, for example as to whether:

• negotiations constitute inside information. Case law has considered that such is the case where the transaction is “sufficiently progressed to have reasonable chances to succeed”;
• the proposed transaction is likely to have an effect on the listed share price; or

• the interests of the issuer may be prejudiced and/or the public misled if the transaction is not announced immediately. The European Securities and Markets Authority and the AMF have published guidelines in this respect.

Due diligence aims at allowing a potential buyer to determine whether it is willing to proceed with the transaction and on what terms. In that respect, French law provides that a seller is required to disclose to a purchaser the information that the seller is aware of and knows to be decisive for the purchaser’s consent while the purchaser is legitimately unaware of such information or legitimately trusts the seller. This obligation cannot be contractually reduced or excluded.

The main areas covered by due diligence are to be tailored to the activity of the target. They may include corporate structure and share capital, financial information, key contracts, IP/IT, tax, employment and pensions, permits, real estate, environment/ESG, litigation and disputes.

In the case of private companies, information made available during the due diligence phase will be key given the limited information publicly available beyond basic information (eg, accounts and statutory auditors’ reports, by-laws and certain corporate documents, real estate, trademarks and patents).

By contrast, listed companies must publish detailed information both on a periodic basis (eg, annual reports, annual and half-year accounts) and on a permanent basis (publication of inside information). In a recommended offer situation, bidders may have access to data rooms including inside information. In such situations, the AMF recommends that:

• data room processes be limited to material transactions;
• access be granted only to those bidders that have entered into a specific confidentiality agreement and expressed a serious interest in the transaction in a letter of intent;
• the inside information made available be limited to what is strictly necessary;
• the target represent that equality of information has been restored in all material respects through the publication of the offer documentation; and
• the information disclosed in the data room be made available to competing bidders, subject to entering into a confidentiality agreement, if so required by the principle of equality of treatment between bidders.

In the context of public M&A acquisitions, standstill provisions beyond acknowledgement of the provisions of MAR are usually requested in the context of confidentiality agreements.

Exclusivity agreements entered into between the seller and the purchaser pending completion of the information and consultation with works councils are very common. In the context of a bilateral sale, exclusivity may be accepted by the seller earlier in the process than in a competitive process, where exclusivity would usually be granted towards the very end of a process.

In addition, in the context of a takeover offer, if exclusivity is to be granted by the target, it would be subject to the principle of free interplay between offers and counter-offers and the obligation for directors to act in the best interests of the target.

French law allows tender offer terms and conditions to be documented in a definitive agreement.

In addition to the agreement entered into between the bidder and the key seller(s), entering into a tender offer agreement with the target tends to be increasingly common. Such agreement will need to comply with the principle of free interplay between offers and counter-offers.

The duration of an M&A process to acquire a company depends on several factors: some are specific to the bidder, the seller(s) and the target (eg, bilateral or competitive process, scope of due diligence, complexity of the transaction including with respect to regulatory analysis and number of parties involved); others depend on third parties (eg, discussions with debt providers to secure financing or with regulatory authorities to obtain the relevant regulatory authorisations, authorisation from shareholders, litigation by minority shareholders or works councils) (see 6.4 Common Conditions for a Takeover Offer and 6.7 Types of Deal Security Measures).

Therefore, depending on the circumstances, the overall process from first contact to completion can take weeks or months, sometimes even exceeding a year where regulatory authorisations are subject to lengthy processes.

Where the target is listed on Euronext Paris, there are two situations in which the bidder must make an offer for 100% of the target’s shares and other equity securities giving access to its share capital:

• the bidder, acting alone or in concert with others, directly or indirectly crosses the threshold of 30% of the target’s shares or voting rights; or
• the bidder, acting alone or in concert with others, holds between 30% and 50% of the target’s shares or voting rights and increases, directly or indirectly, such holding by more than 1% within less than 12 consecutive months.

The same rules as those used for the purposes of legal threshold reporting obligations apply, except that shares underlying physically settled or cash settled derivative instruments or agreements which give an economic effect similar to holding actual shares shall not be taken into account.

However, the AMF may grant an exemption to the filing of a mandatory offer in specific cases, in particular where the crossing of the relevant threshold results from an increase in the share capital of a target experiencing financial difficulties or from a merger, demerger or contribution in kind, which in each case is approved by the target’s shareholders.

Cash is the most common form of consideration in public or private acquisitions, although contributions of shares to listed or unlisted companies are quite common.

In public acquisitions, it is important to note that a cash option must be offered if the shares proposed in the exchange offer are not liquid shares admitted to trading on a EU regulated market and/or if the bidder, alone or with concert parties, has acquired more than 5% of the target shares or voting rights in cash over the last 12 months. Whether in cash or for securities, the same consideration must be offered to all shareholders and, if applicable, the price requirements for tender offers (eg, in a mandatory tender offer, the offer price must be at least equal to the highest price paid by the bidder or its concert parties over the last 12 months) must be complied with. Finally, in practice, the offer consideration must be considered fair by the independent expert for the offer to proceed.

In deals with high valuation uncertainty, parties mainly use earn-out provisions to bridge the value gap between the parties, ie, by providing for the payment of additional consideration if certain performance milestones are reached (eg, level of revenue or EBITDA or authorisation of certain products by regulatory authorities). These mechanisms can be provided for in an agreement or be embedded in a financial instrument (eg, share warrants, preferred shares and contingent value rights). They may apply in both public and private M&A transactions but are more cumbersome to implement in public M&A transactions.

The principle is that takeover offers for targets listed in France must be unconditional, subject to the following limited exceptions:

• Minimum level of acceptance: See 6.5 Minimum Acceptance Conditions).
• Other conditions: A voluntary offer may also be conditional upon:
1. the authorisation by the shareholders of the bidder of the issuance of the securities to be remitted as consideration in the offer;
2. the success of other offer(s) launched by the same bidder;
3. certain antitrust authorisations, to the extent they are obtained in Phase 1. If an in-depth investigation is opened, the offer will automatically lapse; and
4. other regulatory conditions, whether sector-specific (eg, specific authorisations for credit institutions or insurance companies) or pursuant to the foreign investment regime.

The bidder may also withdraw its offer where the timetable for a competing or an increased offer is published by the AMF or with the prior consent of the AMF, where defensive measures are taken (see 9.3 Common Defensive Measures).

With respect to private M&A transactions, there are no legal limitations to the conditions that can be agreed between the parties except that conditions must not be illegal or immoral and their satisfaction must not depend on the sole discretion of one of the parties.

French law provides that any takeover offer (whether voluntary or mandatory) automatically lapses where the bidder would not hold more than 50% of the share capital or the voting rights as a result of the offer. As an exception, the AMF may authorise such threshold to be lowered or disregarded where it seems impossible or unlikely to reach such threshold for reasons unrelated to the terms and conditions of the offer (eg, if the target is already controlled by another shareholder or if there are competing offers).

This 50% threshold corresponds to the majority required to pass resolutions in ordinary general meetings of the shareholders, which is the corporate body in charge of, among other things, appointing and removing directors, and approving financial statements and related party transactions. The objective is to ensure that the bidder pays the appropriate level of control premium, as it cannot obtain de facto control (ie, a level of shareholding that is less than 50% but would allow the bidder to have a majority at a general meeting).

If the offer is voluntary, the bidder may also make the offer conditional upon reaching a higher threshold. A level of two-thirds of the voting rights, which gives control over the extraordinary general meeting of the shareholders, is quite common (this provides the ability, among other things, to amend the articles of association, issue new shares or equity securities, or approve a legal merger). By contrast, a threshold of 90% of the share capital and the voting rights, which is the level of shareholding required to implement a squeeze-out (and hence also ensure tax consolidation), is in practice not accepted by the AMF.

A takeover offer filed with the AMF cannot be conditional on the bidder obtaining the appropriate financing for such offer.

In private M&A transactions, while not prohibited, such a financing condition would limit deal certainty, which is a key consideration, in particular for sellers that are private equity sponsors. Therefore, in practice, transactions subject to a financing condition, which are quite rare, would impose stringent obligations on the purchaser to actively seek and accept financing proposals.

Since the period between signing and closing tends to be longer where complex regulatory authorisations are required, certain security measures such as those described below may be sought by a bidder.

Break fee provisions are not uncommon in both public and private deals. Such provisions must be in the corporate interests of the entity that would be liable for payment. The amount of the break fee should be determined accordingly.

In public M&A transactions, the situation is subject to additional constraints as break fees must not hinder the principle of free interplay of offers and counter-offers. The AMF and French courts would accept break fees to be paid:

• by shareholders as part of commitments to tender their securities to the offer, provided that the break fees do not de facto prevent such shareholders from tendering their shares to a higher offer, if such stakes are material. In practice, break fees should represent only a limited fraction of the price increase proposed in the higher offer; or
• by the target as a result of changing its board recommendation, to the extent that the break fees do not deter the filing of a higher offer by another bidder. They should not exceed 2% of the target’s equity value resulting from the offer already filed (see decision by the Paris Court of Appeal dated 13 March 2020 in the Capgemini/Altran case).

As to exclusivity provisions/non-solicitation provisions, please refer to 5.4 Standstills or Exclusivity.

In private M&A transactions, minority shareholders may negotiate with other shareholders any governance rights, including seats on the board and/or veto rights, through shareholders’ agreements, inclusion in the articles of association and/or preferred shares.

In public M&A transactions where the bidder remains a minority shareholder, it may typically enter into a shareholders’ agreement containing provisions relating to governance such as allocation of board seats. However, shareholders’ agreements must be reviewed carefully as they may constitute concerted action, which would result in aggregating the shareholdings of the parties to determine whether a threshold has been crossed for the purposes of threshold reporting or mandatory tender offers.

In France, shareholders may vote by proxy and may be represented by any individual or legal entity of their choice. Shareholders may also send in a blank proxy form. In this case, the chair of the shareholders’ general meeting votes on behalf of the shareholder, in favour of the resolutions approved by the board, and against the others.

Where the target is listed, a bidder and its concert parties have the right to force the acquisition of the target shares held by minority shareholders to hold 100% of the target if, following a tender offer, they hold more than 90% of the share capital and the voting rights of the target. Please note, however, that there is no mechanism to ensure reaching this threshold. 

No clearance by the AMF will be required for the squeeze-out if the squeeze-out price is equal to the cash price offered in the tender offer, and: (i) the offer was made under the standard procedure (ie, by a bidder holding less than 50% of the share capital or the voting rights of the target); or (ii) the AMF was provided with a multi-criteria valuation of the target and a fairness opinion by an independent appraiser, in the tender offer. The multi-criteria valuation is carried out using the objective methods applied in cases of asset disposal and taking into account the value of the target’s assets, its profits, its subsidiaries (if any), its business prospects and the market price of its securities, according to a weighting appropriate in each case.

In other cases, the AMF will need to clear the squeeze-out procedure and to that effect will need to: (i) verify that the squeeze-out price is based on a multi-criteria valuation (see above); (ii) obtain a fairness opinion delivered by an independent appraiser to the target board; and (iii) review specific squeeze-out documentation.

Securities giving access to the target share capital may also be the subject of a squeeze-out if the bidder and its concert parties hold 90% of the target share capital and voting rights on a diluted basis.

No similar squeeze-out procedure exists for non-listed companies.

To enhance their chances of success, prior to launching a tender offer bidders often seek to secure undertakings from key shareholders to tender their shares to the proposed offer. Such undertakings need to be disclosed to the target, the AMF and the public.

The AMF, supported by case law, considers that true irrevocable commitments, which would ensure the success of an offer, would violate the principle of free interplay between offers and counter-offers. Therefore in practice, where they relate to material stakes, such undertakings are revocable in the case of a higher offer. The AMF and French courts accept that such undertakings include break fee provisions (see 6.7 Types of Deal Security Measures).

The bidder may also seek to secure a transaction requiring shareholder approval by obtaining voting undertakings from key shareholders. This means that such shareholders will not sell their shares until after the general meeting approving the transaction.

The detailed terms and conditions of a takeover bid will be made public following the actual filing of the draft offer with the AMF by the bidder’s presenting banks (ie, the credit institution(s) that guarantee(s) the irrevocability of the offer vis-à-vis the target’s shareholders). To that effect, a draft offer document, which remains subject to AMF review and approval, will be posted on the bidder’s website along with a press release describing the main terms and conditions of the draft offer.

In a voluntary offer, this will occur when the bidder is ready. In a mandatory tender offer, such publication will occur shortly after the occurrence of the event triggering the mandatory offer.

However, in most cases, the main characteristics of the offer will have been made public well ahead the filing with the AMF, by way of a press release (see 5.1 Requirement to Disclose a Deal).

In the context of a tender offer, the bidder must prepare an offer document (note d’information) and the target must prepare a response document (note en réponse), which will be submitted as drafts to the AMF. Once reviewed, and as the case may be amended, they will be cleared by the AMF at the same time as the terms and conditions of the offer.

The offer document includes information to allow shareholders to decide whether or not to tender their shares to the offer, in particular:

• the identity of the bidder and its concert parties;
• the terms and conditions of the offer;
• the bidder’s intentions regarding the financial and industrial strategy for the new group for the next 12 months, as well as its intentions with respect to employment;
• the industrial organisation and governance of the new group;
• the benefits of the transaction for the target, the bidder and their shareholders;
• any planned synergies;
• any merger, potential squeeze-out or delisting of the target within the next 12 months;
• the costs associated with the transaction; and
• the financing of the offer.

The target response document mainly includes:

• the reasoned opinion of the board regarding the merits or risks of the offer for the target, its shareholders and its employees;
• the fairness opinion by the independent appraiser;
• the intention of the board members as to the tendering of their shares; and
• the opinion of the works council of the target.

Where all or part of the consideration is in securities issued by the bidder, the bidder will need to prepare an “exemption document” which will contain the relevant information necessary to enable investors to understand the prospects of the bidder and the target, the rights attaching to the equity securities, and a description of the transaction and its impact on the bidder (Commission Delegated Regulation no 2021/528 of 16 December 2020 relating to prospectus exemption).

A prospectus or an exemption document will also need to be produced in the case of a “legal” merger or a contribution in kind involving the listing of new shares.

The preparation of pro forma financial information will be needed in a prospectus or exemption document where the transaction would result in a variation of more than 25% to one or more indicators of the size of the issuer’s business.

Contractual documents do not have to be disclosed in full to the public, but will be made available to the AMF. Only the material information included in such documents needs to be disclosed to the public.

By exception, in a “legal” merger or contribution in kind, the merger agreement and contribution agreement need to be disclosed in full as they are submitted for shareholder approval.

The main duty of directors of French companies is to act in the corporate interest (intérêt social) of the company. The notion of corporate interest is not defined by French law. However, corporate interest is generally understood as the interest of the company itself as a legal entity, which takes into account (but is not limited to) the interests of the shareholders and other corporate stakeholders, such as employees. Directors may be held civilly liable, or depending on the circumstances even criminally liable (eg, in the case of misuse of the funds or assets of the company), where their decisions are not in the corporate interest of the company.

In the context of a business combination, directors must ensure that the potential transaction benefits the company. Therefore, in deciding whether to recommend a takeover offer, the attractiveness of the offer price will not be the only driver. Target directors shall also have regard to the other aspects of the transaction, including the intentions of the bidder. In that respect, the strategy to be implemented vis-à-vis the target and its impact on the business and employees are key.

Directors must also be mindful of the guiding principles governing takeover offers in France, including free interplay between offers and counter-offers, equal treatment and information for all security holders, market transparency and integrity, and fairness of transactions and competition (see 8.2 Special or Ad Hoc Committees as to defensive measures that can be implemented by the target).

Establishing an ad hoc committee is a very common practice for boards of directors of listed companies, and is even mandatory in certain situations.

The board of the target of a takeover offer will be required to create an ad hoc committee where the appointment of an independent appraiser to opine on the fairness of the offer price is mandatory. This would be the case where the offer is likely to:

• cause conflicts of interest within the board (eg, where the company is already controlled by the bidder, where the directors have entered into agreement(s) with the bidder that could compromise their independence, or where the offer relates to one or more transactions that could have an impact on the offer price);
• jeopardise the equal treatment between target shareholders or security holders; or
• involve a squeeze-out procedure.

Therefore, in practice, an independent appraiser and the organisation of an ad hoc committee will be needed in almost all friendly takeover offer situations. The ad hoc committee should be composed of at least three directors, comprising a majority of independent directors. Its role will consist of making recommendations on the identity of the independent appraiser, monitoring the independent appraiser’s works, and preparing a draft of the reasoned opinion (avis motivé) of the board resolving on the proposed offer.

More generally, where a listed company is contemplating the acquisition or disposal of material assets, the AMF recommends that the board of directors pay particular attention to identifying and managing potential conflicts of interest and ensuring the objectivity and impartiality of the review of the transaction, including by putting in place ad hoc committees comprised of independent members.

In any event, the powers of an ad hoc committee are limited to assisting the board with the analysis of the transaction and making a recommendation to the board. The decision-making powers and related liability will remain with the board as a whole.

There is no obligation to establish special or ad hoc committees in business combinations involving private companies. It is therefore up to such companies to decide whether or not this would be useful.

Since the new legal regime relating to defensive measures was established in 2014, boards of directors of targets benefit from much more flexibility to implement defensive measures during a takeover offer (except where their articles of association specifically provide otherwise). Boards may make any decision that may cause the offer to fail, provided that such decision does not encroach on the powers expressly reserved for shareholders and is within the limits of the corporate interest (intérêt social) of the company.

Therefore, French courts may second-guess the defensive measures adopted by target boards to the extent such measures would not comply with the target’s corporate interests. Their interpretation of such concepts will be key to determining the extent of the board’s powers and their potential liability. However, defensive measures are not often reviewed by French courts as parties often come to an agreed solution prior to the courts rendering their decisions.

In the Veolia/Suez offer, the AMF also reiterated that defensive measures must comply with the guiding principles applicable to takeover offers and, in particular, the principle of free interplay between offers and counter-offers. On the basis of this principle, the AMF considers that defensive measures must not favour one competitor to the detriment of others, nor dictate the terms and conditions of an offer to a specific bidder. However, certain academics and practitioners do not share this view. If the AMF’s position is validated, French courts may also challenge the defensive measures adopted by target boards on the grounds that they do not comply with the takeover offer guiding principles.

In M&A private transactions, it is common practice for a company to appoint outside legal, financial and/or strategic advisers to help directors assess the opportunity of a transaction.

The same applies to public M&A transactions, with additional specificities:

• it is common practice for boards and/or ad hoc committees to have separate legal and financial advisers in takeover offers that may raise conflicts of interest;
• where the takeover offer may trigger a conflict of interest within the board of directors or jeopardise the equal treatment among security holders, an independent appraiser must be appointed to opine on the fairness of the offer price for minority shareholders; and
• where the acquisition or sale of material assets is contemplated, the AMF recommends that boards pay particular attention to identifying and managing potential conflicts of interest and ensuring the objectivity and impartiality of the review of the transaction, including by appointing separate legal counsel for the board and management, as well as appointing independent appraisers.

Conflicts of interest are an issue that is addressed by several provisions of French law and soft law.

French law provides for a specific approval regime for related-party agreements other than those which are customary and entered into on arm’s length conditions. In substance, the objective of such a procedure is to ensure that:

• the contemplated agreement is in the company’s interests, in particular regarding the proposed financial terms and conditions; and
• the decision is made without influence from any interested parties (eg, any direct or indirect shareholder holding more than 10% of the voting rights of the company, any director of such company, or any person who is a director of both parties to the agreement).

More generally, the main governance codes applicable to listed companies recommend that a director in a conflict of interest situation, whether actual or potential, report this situation to the board and abstain from taking part in related discussions or votes. As such codes constitute “soft law”, deviation from such recommendations would result in the company having to explain why such deviation was justified.

Involvement of independent appraisers is necessary in most takeover offer situations (see 8.2 Special or Ad Hoc Committees) as well as in the case of “legal” mergers, spin-offs or contributions in kind. The independence of such appraisers is assessed on a case-by-case basis. In the context of a takeover offer, case law has determined that revenues from the bidder representing less than 2% of the annual revenues of the independent appraiser would not jeopardise such appraiser’s independence, provided that the individuals in charge of the new assessment have not been involved in previous assessments.

A “hostile” tender offer is defined as a takeover offer that is not recommended by the target board. Although hostile offers are seen in France (eg, the recent offer by Veolia for Suez), they constitute a very small proportion of takeover offers in France.

See 8.3 Business Judgement Rule.

In France, several takeover defensive measures have been proposed, partly implemented and/or rejected. However, their validity in light of the guiding principles of takeover offers and their conformity to the corporate interest requirement have not been tested before the French courts. Indeed, as was the case for the Veolia/Suez offer, hostile offers are most often converted to recommended offers following the improvement of the terms and conditions of the initial offer.

Putting aside situations where a friendly competing bidder (or “white knight”) is found, the following common defensive measures have been partly implemented or proposed:

• approving an increase in the share capital in cash or in kind (defence contemplated by Arcelor in the offer by Mittal Steel) by an extraordinary shareholders’ meeting;
• authorising the board to issue share warrants to existing shareholders before the end of the offer period, pursuant to a decision of the extraordinary shareholders’ meeting. Such share warrants would allow existing shareholders to subscribe for new shares with a substantial discount (defence contemplated by Wavecom and Foncière de Paris);
• the “Pac-Man” defence, where the target proposes to initiate a takeover offer for the initial bidder (defence contemplated by Elf in the offer by Total);
• a sale of treasury shares; and
• ring-fencing a material asset by transferring it to a trust and subsequently making such transfer irrevocable except if an increased offer were to be filed at a predetermined price or if a predetermined amicable solution were agreed by the initial bidder (as contemplated by Suez in the offer by Veolia).

To the extent such defensive measures would render the offer purposeless, affect the substance of the target, its assets, liabilities or business either during the offer or in the case the offer is successful, or result in increasing the cost of the takeover offer for the bidder, the initial bidder would be able to withdraw its offer with the prior consent of the AMF. Furthermore, the bidder may also withdraw its offer within five trading days of the publication of the timetable for a competing offer or improved offer.

Also see 10.1 Frequency of Litigation.

See 8.1 Principal Directors’ Duties and 8.3 Business Judgement Rule.

Prior to the 2014 legal reform, theresponsibility for implementing defensive measures rested with the general shareholders’ meeting. The transfer of such authority to the members of the board theoretically gives them the ability not to recommend the public offer and to adopt defensive measures instead.

In public M&A transactions, litigation is not uncommon and would typically cover the following situations:

• Hostile takeover offers: In such cases, litigation is weaponised by the bidder and/or the target and their stakeholders to put pressure on the offeror or the target (as applicable) and, from the target’s perspective, delay the timing of the transaction. For example, in the recent Veolia/Suez case there were no fewer than five litigation streams (ie, litigation launched by Suez, the Suez works council and Veolia).
• Recommended takeover offers: Litigation is brought by minority shareholders that are disappointed by the level of the offer price, or by bidders in the context of competing offers.

The AMF also tends to launch investigations in the wake of takeover offers to identify potential market abuses (eg, insider dealing or misleading information).

Litigation in private M&A transactions has increased over the years. Recently, more disputes have been raised on the grounds of fraud (dol) or failure by sellers to comply with their pre-contractual disclosure duties as purchasers tried to compensate for limited contractual protections (see 5.3 Scope of Due Diligence).

Public M&A transactions

In hostile offer situations, the timing for bringing litigation will depend on the circumstances and the defensive measures implemented; litigation could be brought as early as the announcement of the takeover offer.

In recommended offer situations, minority shareholders or competitors will typically challenge the AMF clearance decision; such challenge must be made within ten calendar days after the AMF decision is issued. However, minority shareholders will usually express their concerns beforehand and make appropriate contact with the AMF, the independent appraiser and the media, so as to maximise the chances of an increased offer price without having to resort to litigation.

Private M&A transactions

Most litigation cases are brought post-closing, once the purchaser has had the opportunity to complete an in-depth review of the company and its financials and has had exchanges with the company’s employees.

Due to the impact of the COVID-19 pandemic on the financial situation and prospects of certain targets, certain purchasers have sought not to close the deals they had entered into, although they were technically not allowed to do so absent any material adverse change clause.

At this stage, it is difficult to identify any specific teachings from such situations as litigation on major cases is still ongoing, in particular to determine the amount of damages.

Over the last few years, shareholder activism has materially developed in France. This is illustrated by the AMF guidelines on favouring loyal and fair dialogue in the context of activist campaigns, which were published in 2021.

In France, shareholder activism has recently focused on:

• “say on climate” resolutions or ESG-related demands, including demands for additional reporting or increased reduction of certain emissions (eg, TotalEnergies);
• company strategy, with activists seeking operational or strategic changes such as divestment, reorganisation, cost-cutting and M&A demands;
• corporate governance, focused on requests for management or board changes, or separation of the corporate functions between the chair of the board and the CEO; and
• compensation of executive officers.

Recent activist campaigns have sought to instigate M&A transactions, spin-offs or major divestitures to unlock value for shareholders. Recent high-profile examples of this strategy in France include the campaigns by Amber Capital with respect to Suez and by Elliott with respect to Pernod Ricard.

In addition to trying to challenge AMF decisions giving clearance to tender offers (by acquiring minority stakes for such purpose), activist shareholders have recently tried to interfere with ongoing M&A transactions.

Recent high-profile examples of this strategy in France include the campaigns by TCI urging Airbus to cease discussions regarding the acquisition of certain Atos businesses, and by CIAM demanding that Atos terminate the sale of part of its activities to Daniel Kretinsky’s group.