Ciments Français was to be absorbed by Italcementi, which had already been its controlling shareholder for many years. Europhiles would have welcomed the first application of the Directive of 26 October 2005, opening the way to cross-border mergers. Unfortunately, the operation failed, due to the opposition of some American holders of Ciments Français notes, who refused to become creditors of Italcementi. Having had the privilege of reporting on this transaction as merger commissioner on the French side, I draw the following lessons from it.
THE RETURN OF THE CREDITORS
During the 1990s, we saw the return of shareholders to power in companies; under the effect of the crisis, it is the creditors who are asserting themselves. The consequences for mergers are fundamental:
- Our famous universal transfer of assets, a technique which imposes on the creditor a change of debtor, is giving rise to some concern. In France first of all, where it is increasingly opposed to the exception of intuitu personae contracts, a category into which more and more financial contracts will fall as awareness of the counterparty risk increases. It is not enforceable against a foreign creditor who will only be bound by the contractual provisions specific to the instrument issued. Even then, these provisions probably cannot prevent the holder from invoking a change in the financial profile of the debtor, even in the case of an intra-group merger.
- The financial crisis has led to a rediscovery of the very existence of legal persons, a concept that has been somewhat neglected in the context of group law. Basically, lending to the Italcementi group does not mean anything and it is not the same thing as lending to Ciments Français or Italcementi, even if the former is a subsidiary of the latter. Law and finance come down to elementary considerations!
THE LIMIT OF CROSS-BORDER MERGERS
The Europe of the merchants would be made to the detriment of that of the people. This often-heard phrase turns out to be absolutely false as soon as you get into the details of things…. The merchants, or at least the financiers, are not necessarily better off than the people! This is the second lesson of this first application of the Directive in France.
Let us pass over the question of the working language; only English allows Europeans to understand each other, or at least to believe that they understand each other. There is no point in crying over the fate of French, which even the nationals of Latin-speaking countries have thrown into oblivion. It can never be said enough how much the absence of a policy on the French language in the construction of Europe has been to our disadvantage.
Let us also pass over the fact that the Directive continues in part to reason as if we were in private international law and not in Community law:
- two merger commissioners are appointed by two different authorities and issue two separate reports, based on different definitions of duties;
- two market authorities are involved, the AMF and the CONSOB;
- two procedures are put in place to ensure the legal regularity of operations.
In short, everything is done so that the natural antagonism between the absorber and the absorbed is supplemented by differences, or even a rivalry linked simply to nationality.
In terms of the substance of legal and market practices, the differences are no less significant:
- The degree of protection of minority shareholders remains different in the text of the rules and in their application. An example: the Italians have a fairly widespread category of shares known as “savings shares” which, in return for a priority dividend, are deprived of voting rights. Whereas the French rule requires that all shares be included in a public offer, the Italian rule allows savings shares to be excluded from the offer.
- One would have thought that the financial crisis would lead stock market regulators to coordinate their actions: where the AMF prohibited short selling only on financial stocks, CONSOB covered a large part of the market including Italcementi. This affected the behaviour of the stock in relation to all its cement competitors.
- What happens to the small holder of Ciments Français who becomes a shareholder of Italcementi? In the absence of real comparability of rights and regulatory information, Italcementi had decided to list its shares in Paris. This would have been a good thing for the French holders, a bad thing from the point of view of market unity.
- On the other hand, the cooperation of the tax authorities is to be welcomed: the withholding tax levied by the Italian tax authorities on the dividend is deducted directly from the French distribution tax.
So there goes a first Franco-Italian merger. Let’s hope that this failure will not make articles 236-25 et seq. of the Commercial Code become obsolete rules!