France is preparing to push European Union takeover rules to their limits again by giving companies the right to use so-called poison pill defences to rebuff hostile takeover bids – even if they come from companies unable to use similar strategies.
The new rules allow companies subjected to a hostile bid, or expecting a possible raid, to issue warrants convertible into shares at a discounted price to existing shareholders, making any offer more expensive and encouraging friendly talks.
Thierry Breton, finance minister, told the senate yesterday: “To think we can keep economic activities in France by opposing any change in their owner-
ship would be a great mistake.”
Instead, he said he aimed to “give French companies the ability to defend themselves on equal terms”.
But by letting companies use poison pills to ward off bidders – such as UK companies – that do not have access to similar measures, the French government seems to be going against the spirit, if not the letter, of the recent European takeover directive.
Charlie McCreevy, the European Union internal market commissioner, yesterday hit out at countries such as France and Luxembourg that are preparing to grant companies generous use of poison pill defences.
The EU intended any poison pill measures to be reciprocal, applying only if the bidder also had access to similar defence strategies.
The French move, likely to trigger accusations of protectionism, reflects alarm among political and business leaders about the risk of foreign raids. These sharpened after rumours of a bid for the food group Danone last year, and grew with Mittal Steel’s bid for Luxembourg-based Arcelor.
Mr McCreevy said: “While these measures may be in line with the [EU] takeover directive, I believe they are contrary to the spirit of the movement of capital,” he said in a reference to EU laws guaranteeing the free movement of capital across the 25 member states.
The commissioner said: “I believe it’s looking backwards instead of forwards,” adding that such moves were “the wrong message to be sending about the openness of the EU to new investment”.
French minority shareholder groups were also sceptical. They warned that poison pill measures could be used by underperforming managements to protect themselves from takeover as well as putting a damper on French stock market activity and valuations.
“Will this new procedure not just serve as a way to protect managements?” asked Colette Neuville, head of minority shareholder group ADAM. “Shareholders already have a very simple way to refuse a bid, by not selling their shares.”
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