Dealing with Stock Options and Free Shares when Launching a Tender Offer on a French Company
By Erwan Barre & Jeremie Gicquel
Acquisitions of French companies raise a number of employment law issues, including issues related to employee share compensation plan, information and consultation of employee representatives, management transition and treatment of employee personal data. Dealing with these issues is important, especially when employees are key to the success of the business.
When the target is a public company acquired through a tender offer, bidders need to carefully consider employees incentive schemes as they may have a significant impact on the outcome of the tender offer itself. As bidders generally seek to control at least 95% of the target for tax integration purposes and in order to be allowed to squeeze out the minority shareholders, French tender offers are often subject to a minimum tender condition threshold generally computed on a fully diluted basis. In a friendly deal, it is therefore both the targets and the bidders interest that stock options and free shares be tendered.
Most French listed companies have stock option and free share plans in place, benefiting not only top executives but also more and more often other executives as well as rank-and-file employees. At the time a change of control is considered, the number of shares or options granted pursuant to such compensation plans can represent a significant portion of a companys capital on a fully diluted basis. Considering that stock options and free shares are subject, under French law, to restrictive vesting and lock-up periods during which the underlying shares cannot be assigned, share compensation plans must be dealt with carefully in the context of a public tender offer in order to ensure that the bidder owns in the end more than the required number of target shares to meet the condition, on a fully diluted basis.
Dealing with such stock options and free shares requires a prior review of the moving legal framework applicable to French stock option and free share schemes, in order to identify and distinguish between several groups of holders and treat each of these groups in a way which will allow the bidder to fulfill its objectives.