THE FRENCH STOCK EXCHANGE
& RELATED FINANCIALMARKETS
How they operate
and how they are regulated

Any shareholder of a listed company that wishes to pull out is free to sell its shares as soon as a buyer can be found. However there are circumstances in which it is difficult or impossible to do so, usually because of the low liquidity of that particular share market. Public buy-out offers (OPR, offre publique de retrait), established by the law no. 89-531 of 02.08.89, make it possible for a minority shareholder, under strictly defined conditions, to pull out by having its shares bought by the majority shareholder(s). The implementation of this kind of offer requires the majority shareholder to buy all shares that are presented to him and the minority shareholder has the possibility but not the obligation to sell its shares.

Another procedure which, like the OPR, is for the buy-out of minority shareholders was introduced into French stock exchange regulations by the law no. 89-531 of 2.08.1989, it is the procedure of compulsory buy-out. This enables the majority shareholder under certain strictly defined conditions to force the minority shareholders to sell their shares in exchange for an indemnity. This procedure systematically causes the company to be struck of the official list, which is not always the case with an OPR, and gives the majority shareholder (on the condition that it holds the required amount of shares) the power to interfere with the right of ownership of minority shareholders.

Although both mechanisms partially share the same goal the public buy-out offer and the compulsory buy-out differ on three points. First the party initiating the procedure - which in the case of the public buy-out offer may be either the majority or minority shareholders, but in the case of compulsory buy-out may only be the majority shareholder. Secondly, the conditions under which the two procedures can be initiated differ. Finally, the result of the procedures are different. It should also be noted that if a public buy-out offer can be started independently, every compulsory buy-out must follow a public buy-out offer and aims to acquire shares that were not presented during the first procedure. This mechanism inspired by the British squeeze out and sometimes called "expropriation for private benefit" is increasingly employed in France since it has been legally authorised.

The description of these two mechanisms is of particular interest today because the law no. 88-70 of 22.01.1988 that contained in article 6 bis the legal basis of the public buy-out offer - on which the stock exchange council's regulations were based - was abrogated by the law of 02.07.1996 on the modernisation of financial activities. When this new law is implemented, the General regulations of the Conseil des marchés financiers (Financial markets council) will replace the general regulations of the Conseil des bourses de valeurs (Stock Exchange council) and although there are no substantial modifications to the regime of these mechanisms in the new law, it would be advisable to check that the outline of the procedure is maintained.

I - The public buy-out offer or the escape clause for minority shareholders

A - Principles and aims of the public buy-out offer procedure

B - The four situations when a public buy-out offer is possible

1 - The minority shareholders file a public buy-out offer (article 5-5-2 of the Stock Exchange Council's general regulations)

2 - The majority shareholders initiate a public buy-out offer (article 5-5-3 of the Stock Exchange Council's general regulations)

3 - Transformation of a limited company to a limited partnership (article 5-5-4 of the Stock Exchange Council's general regulations)

4 - Significant modification of the company's status or activity (article 5-5-4 of the Stock Exchange Council's general regulations)

C - Determination of the buying price

II - The French squeeze out mechanism

A - Forced dispossession of minority shareholders

1 - The mechanism of compulsory buy-outs

2 - Is this type of dispossession justifiable?

B - The choices open to the initiator of a compulsory buy-out procedure

1 - As soon as the public buy-out offer is filed the initiator promises to proceed with a compulsory buy-out at the end of the public buy-out procedure

2 - The initiator reserves the possibility of filing a compulsory buy-out procedure at the end of the public buy-out procedure

C - Minority shareholders' indemnity

D - The results of a compulsory buy-out

1 - The method of security transfer

2 - The indemnity procedure for minority shareholders

D.M.

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