On 29 February, the French General Assembly passed a bill, known as the bill for “simplification of the law and facilitation of administrative processes”, which provides for the aggregation of cash-settled securities as part of the calculation of thresholds crossing disclosure obligations.
Under the present law, cash-settled instruments (unlike, in principle, equity settled instruments) are not aggregated with shareholdings for the purpose of calculating whether an investor has reached a legal disclosure threshold. Holdings in cash settled instruments are only declared, separately, once the investor has crossed the legal thresholds through holdings in shares and other assimilated instruments.
The new bill was proposed by a member of the French general assembly in response to several recent cases, most notably the LVMH/Hermès saga during which LVMH, the French luxury group, abruptly increased its shareholding in the capital of Hermès, a French family-owned luxury company, through the use of cash settled swaps (which were amended at the last minute to be settled in equity) and the Wendel/Saint Gobain case in which Wendel, a French financial investment company used cash-settled instruments (total return swaps) in order to facilitate its stake increase in the capital of the French construction group Saint Gobain. These cases created quite a stir in the market in 2010 and relaunched the debate on the need for taking cash settled instruments into account for threshold crossing disclosure purposes.
Article 25, II of the bill adds a new case of assimilation to article L.233-9 of the French Commercial Code. This article now provides that the following must be assimilated to shares or voting rights of an investor:
“Shares already issued which are the subject of any agreement or financial instrument […] settled in cash and having for this person […] an economic effect similar to the possession of shares. The same applies to voting rights which, under the same conditions, are the subject of any agreement or financial instrument”.
This article goes on to provide that AMF will modify its General Regulation to detail the application of the above cited text and in particular the conditions under which an agreement or a financial instrument will be considered as having an economic effect similar to possession of shares. The AMF will therefore complete the new regime. It is important to note that, contrarily to an early proposal, cash-settled instruments remain excluded from the calculation of the thresholds triggering mandatory public tender offers.
The new bill still needs to be officially enacted by the President; the article referred to above will come into effect on the first day of the seventh month thereafter.
It is worth noting that the European Commission’s proposal to amend the Transparency Directive includes a similar provision for the aggregation of cash-settled instruments.