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Companies planning takeovers in France must disclose true intentions to workers under new law

Companies in France must be better prepared to disclose their future plans for companies they are trying to take over following the introduction of new legislation which gives employees more rights to know what prospective takeovers could mean for them, according to a legal expert who was closely involved in the discussions relating to the drafting of the new law.

Under the new law those bidding to take over a company are now legally obliged to meet with the workers' committee of the target company and answer questions about what they plan to do if they succeed in taking over. The consultation must be completed before the board of the takeover target expresses its opinion on the proposed takeover.

Workers' committees will have the right to appoint an accountant to examine some documents relating to the bidders' plans, and report their opinion back to the workers' committee.

Bidders who refuse to divulge their plans, or are later to be found to have withheld their genuine intentions, could in some cases face prosecution for infringing the law.

Following an acquisition, the new owner will also be obliged to periodically update the workers' committee of its commitments. This consultation will take place on the 6th, 12th and 24th month after completion of the bid.

The new provisions for workers are part of a range of measures introduced this year under France's Loi visant à reconquérir l’économie réelle, which is also known as the Florange law in France. The law focuses on measures relating to the real economy, which is that part of the economy concerned with producing goods and services, as opposed, for example, to that area of the economy which focuses on buying and selling on the financial markets.

Mergers and acquisitions expert Christophe Clerc of Pinsent Masons, the firm behind Out-Law.com, said: "The message for businesses wishing to take over companies is that they really need to think well in advance as to how they will proceed with their bid, in light of the new law. They must be prepared to disclose their genuine intentions and discuss these with workers, and be prepared to face greater scrutiny than before."

In order to limit delays to the takeover procedure, the law requires that the workers' committee offers its opinion on the proposed takeover within one month of the bid being submitted. Paris-based Clerc added: "In takeover bids, time is of the essence. This is why the bidder and the target company may also decide that this consultation period will commence as soon as the bidder announces its proposed takeover, should the announcement precede the submission of its bid."

The workers' committee will have the right to apply to the courts to secure information on elements of documentation it feels is lacking. The court's decision will need to be issued within 8 days. No appeal to the French Cour d'appel will be allowed.

The workers' committee opinion on the bid will not have the power to directly change the outcome of the bid, but the measures are designed to create greater transparency in the takeover process and lessen uncertainty for the staff of targeted companies.

Clerc pointed to the US food company Kraft's takeover of the UK confectioner Cadbury in 2010 as an example of how a bidder's stated intentions for a target company's future can differ from the actuality once a deal is completed. Before the takeover Kraft promised that the deal would not result in compulsory redundancies, but after the takeover it announced the closure of the Cadbury Somerdale plant near Bristol, which employed 400 staff. Kraft later defended itself by saying that when it had more information it realised it was not "feasible to keep Somerdale open", according to the BBC.

Following the Kraft-Cadbury deal the UK Panel of Takeovers and Mergers reviewed UK laws in this area and made changes to the UK's Takeover Code. The moves strengthened the hand of UK target companies, requiring that bidders provide more information about their intentions post-purchase, including in areas such as job cuts, according to the BBC.

Clerc said of the French law: "The law is based on a simple assumption: it is not reasonable for a company to say it does not know what it plans to do with a company it is planning to take over. No one spends millions or billions of pounds on a company without having plans for it."

The new French law is commonly known as the 'Florange' law in France, a reference to the ArcelorMittal steel plant in the French town of Florange. The plant became a symbol of problems in the French industrial sector after the Indian firm Mittal took over Arcelor in 2006 and later announced that it was to close down two blast furnaces in the north-eastern town. The French government threatened to nationalise the plant but later secured promises from ArcelorMittal to invest and avoid forced lay-offs among 630 workers at the site, according to Reuters.

Clerc said that the changes to workers' rights are just one strand of a law which has aligned France's takeover culture more closely with that of the US, where target companies have more means at their disposal to resist takeovers than in countries such as the UK.

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