Merger: conditions of modification by the shareholders

February 19th 2016

The conditions for a merger as set forth in the proposal may be modified by the shareholders during the general meeting for the approval of the operation.

In the context of mergers, the management bodies of each of the companies participating in the merger must adopt the merger proposal (for example, in the Board of Directors or Supervisory Board meetings, for public limited companies; by the Chairman, for simplified stock companies).

This proposal shall then be subject:

  • to filing before the registry of the French Commercial Court in the place of registered office of each company participating in the operation and
  • to a notification inserted in the BODACC (Bulletin Officiel des Annonces Civiles et Commerciales) (a French official publications journal), including several mandatory mentions (in particular, the evaluation of the assets and liabilities, the exchange ratio of rights and the expected amount of the merger premium).

The merger is then decided by each of the companies concerned, in the conditions required for the modification of its by-laws.

After the adoption of the merger proposal by the manager(s), its filing and publication, are the shareholders of the company convened to decide on the approval of the merger entitled to modify the content of the proposal?

The Cour de cassation (French Civil Supreme Court) responded affirmatively in these terms: “the general meetings of the shareholders of the companies participating in the merger may, without overlooking the powers of the company bodies who finalized the merger proposal, approve the merger after having modified the conditions of the operation.

Therefore, the essential characteristics of the merger proposal may be modified during the general meeting, such as the valuation of the contribution to the merging company or the calculation methods for the exchange ratio, without the general meeting deviating from the agenda concerning “the approval of the merger proposal” and without any new publication formalities being required by the Court.

Such solution may be applied to spin-offs and partial asset contribution operations subject to the legal regime for spin-offs as such operations comply with the same rules as merger operations.

The situation is different concerning simplified mergers insofar as these operations do not require, except in very rare cases, the approval of the merger by the shareholders. In this case, an enhanced scrutiny must be given to the drafting and validation in anticipation of the merger proposal, in particular by the control bodies of the companies, party to the merger, in order not to jeopardize either the schedule of operations or the replication of the latter in the company accounts.

Such a decision reinforces the principle pursuant to which the shareholders have sovereign power when the proposals have been submitted for their approval. Therefore, they are entitled to accept or refuse such proposals, including during the approval of the annual accounts.

(Cass. Com., October 6, 2015, no. 14-11.680, A. v/ Habitation moderne)

Lauriane Nocella