All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

The merger operation is carried out through a complex process. The first step involves conducting economic and legal studies to assess the stability of the company with which the merger is contemplated and the viability of the project. Since the legislator has not established any method for evaluating the companies involved in a merger, it is advisable for the parties to engage financial professio …

Preliminary operations

The merger operation is carried out through a complex process. The first step involves conducting economic and legal studies to assess the stability of the company with which the merger is contemplated and the viability of the project. Since the legislator has not established any method for evaluating the companies involved in a merger, it is advisable for the parties to engage financial professionals specialized in complex valuation techniques . The evaluation methods combine mathematical and financial techniques to obtain, from the accounts of the companies concerned, the most accurate possible estimate of reality. To assist companies and facilitate controls, the AMF has developed, for listed companies, recommendations aimed at standardizing the various techniques implemented .

The primary purpose of the evaluation is to establish an exchange ratio , which determines the number of shares in the new company to which the shares of the absorbed company  entitle their holders. This ratio is calculated based on the overall value attributed to each company following the evaluation, divided by the number of shares or units comprising the capital of each. The calculation of the exchange ratio  is particularly important because it must not lead to an undervaluation  or overvaluation  of the company, as this could trigger endless litigation from shareholders who feel aggrieved by the process. This risk is especially significant when the evaluation reveals "fractions," meaning when the difference between the nominal value of the old shares and that of the new shares does not allow for the allocation of a whole number of new shares to a holder. According to the court, the fractions of a shareholder in an absorbed company, resulting from the merger operation and leading to the loss of their minority stake, do not constitute an abuse of majority when they are the consequence of their unjustified refusal of buyout offers for a satisfactory price . Such a solution is understandable since the exchange ratio applies to all partners, excluding any abuse of majority. Furthermore, the partner holding fractions retains the option to sell them or acquire the additional fraction of missing shares.

After the study phase comes the negotiation phase, which must be conducted in good faith. The termination of negotiations to enter into a merger should not result in abuse. Case law has held that the termination of negotiations related to a merger project between a Selarl and a SEL, although sudden or disappointing, does not constitute abuse when the sole shareholder of the SEL, after rejecting an initial project, notified their intention not to continue negotiations at a stage where the parties had only reached a draft shareholders' agreement, and the Selarl prematurely undertook preparatory steps and investments for an association whose principle was not at all secured .

DELESALLE, Mergers of companies: comparative analysis of valuation methods, RF compt. 1991, 224; PRIEUR, MONASSIER, LAFON-BEL and BEGHAIN, The roles of professionals in mergers and acquisitions operations, French Company Law 1995, Practical Acts, 20.

AMF, Guide to drafting prospectuses and information to be provided in the event of a public offer or admission of financial securities, AMF DOC-2020-06 of 17 June 2020, updated on 17 February 2023, 104 p.

GALIMARD, Absorption of company, need for financing and merger parity, Journ. not. 1988, 348; Adde : Versailles, 4 March 2021, LawLex202300002458JBJ, considering that the calculation of the exchange parity determined during a cross-border merger may be subject to judicial expertise when it does not take into account either the value of a trademark likely to increase the value of the securities or the real value of the stocks, whose origin is poorly established with regard to the various activities to which they may be related.

See, for the specific case where the merger occurs after a company has granted options giving the right to subscribe for shares, but before the expiration of the period provided for exercising the options, Cass. 2e civ., 27 November 2014, LawLex202200005548JBJ.

Paris, 28 December 1992, LawLex202300002856JBJ, holding that the exchange ratio of shares of two airline companies must, since the activity requires substantial investments, be estimated according to the relevant criterion of asset value.

CA Rennes, 19 June 2007, LawLex202300002180JBJ, considering that the undervaluation of the absorbed company, during the calculation of the exchange ratio, cannot result from the difference between the value approved by the merger auditor and the valuation of its real estate assets carried out five years earlier for the different purpose of determining their insurance value.

CA Rennes, 19 June 2007, LawLex202300002180JBJ, holding that the overvaluation of the acquiring company during the calculation of the exchange ratio cannot be inferred from the manifest decline in its results at the end of the current fiscal year, as this was not foreseeable given their constant growth in previous years.

Cass. com., 2 December 2020, LawLex202200009499JBJ.

Cass. 1re civ., 20 December 2012, LawLex202200009497JBJ.

Company Law (en cours)

222. Preliminary operations

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222. Preliminary operations

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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