Competition

• Author: International Law Group

Schneider Electric, S.A. made a friendly, $7,900,000,000 offer to take over Legrand, S.A. Both companies are in complementary sectors of the electric equipment manufacturing industry. In January 2001, the Conseil de Marches Financiers (CMF), the French market regulator, approved the offer. The merger would create the world's largest maker of low-voltage electrical distribution equipment.

Led by Colette Neuville, a shareholder activist, who heads the Association de Defense des Actionnaires Minoritaires, the minority shareholders of non-voting preferred shares (ADP) in Legrand went to court. They complained that the deal would have given them only two Schneider shares for each of their shares while the Legrand common-share holders were to get 3.5 Schneider shares for each common share. In a move that surprises most financial observers, the Paris Court of Appeal, on May 3, 2001, annuls the CMF's approval of the proposed acquisition.

The Court does not directly hold that the exchange ratio was unjust. Instead it overturns the CMF's ruling because the agency had not explained why it believed that the offer for the ADP shares would be economically reasonable. On the other hand, it had specifically analyzed the economics underlying the offer for common shares.

The Court also notes that the CMF "should have examined the price or the terms of exchanges in the light of objective evaluation criteria usually used and the characteristics of...