FRANCE Law and Practice Contributed by: Idris Hebbat, Camille Perrin, Franck Vacher and Nicolas Menard-Durand, C-Level Partners
The choice is important in the bidding process, and is made on a case-by-case basis. In the case of a simple sale of a significant block, the risk of a competing bid by another candidate will be reduced or even eliminated if the bidder has acquired the majority of the capital. On the other hand, the purchaser will have to obtain any necessary antitrust clearances prior to the acquisition of the block, which may delay the public offer process. Moreover, in the case of a minority block acquisi - tion, the acquirer will run the risk of holding a non- controlling interest if few shares are tendered to the public offer. In the event of an acquisition giving the shareholder a stake of more than 30% of the capital or voting rights, the bidder will be in a mandatory public offer situation, with price control by the AMF. In the case of a commitment to tender, the bidder only acquires ownership of the reference shareholders’ shares at the time of settlement of the takeover bid. Thus, the bidder acquires these shares at the same time as the shares tendered by the other sharehold- ers. If the bidder does not reach the 50% condition threshold set by French law or the condition threshold freely set by the bidder, the bidder will not acquire any shares and will not find itself a minority shareholder of the target. On the other hand, the AMF requires that the under - takings to tender be revocable in the event of a com - peting bid. Thus, the bidder must accept the risk that the shareholders who have given the commitment to tender may sell their shares to a competitor in the event of a better bid. 8. Management Incentives 8.1 Equity Incentivisation and Ownership Private equity funds often give key managers the opportunity to take part in a transaction by investing alongside them in the target. To this end, an SPV gathering all key managers (Man - Co) is often created. The stake of ManCo in the target company usually ranges from 5% to 15%, depending
on the characteristics of the deal. In an MBO (man - agement buyout) situation, the management obviously has the majority of the capital. The indirect participation of managers in the target is generally preferred over direct participation, mainly because the former scheme is more practical in terms of corporate governance. 8.2 Management Participation In general, management participation in private equity transactions is structured through a manage - ment package, which may take the form of ordinary shares, preferred shares, sweet equity and/or fixed- rate instruments. The idea is to align the interests of the management with those of private equity inves - tors. To this end, managing shareholders benefit from higher returns on their investment. Tax Implications The French Finance Law for 2025, dated 14 February 2025, provides clarification regarding management incentive plans following the uncertainty created by the 2021 Administrative Supreme Court decisions. The new legislation introduces a significant change in how capital gains from management incentive plans are taxed. • Three-times performance ratio test – Gains exceeding three times the financial performance ratio of the company are taxed as employment income, while gains below this threshold benefit from capital gains treatment. • Dual tax regime – For gains up to three times the company’s financial performance ratio, the stand - ard capital gains regime applies (30% flat tax (composed of 12.8% income tax + 17.2% social contributions) + 4% CEHR (additional tax for fiscal revenue higher than EUR250,000 for a single per - son and EUR500,000 for a couple being specified that such tax is 3% for revenue below EUR500,000 for a single person and for revenue below EUR1 million for a couple)) = maximum 34% effective rate). For gains exceeding this threshold, employ - ment income rates apply (up to 45% income tax + 4% CEHR + 10% employee contribution = maxi - mum 59% effective rate).
192 CHAMBERS.COM
Powered by FlippingBook