The historic general meeting of shareholders at Solocal Group on October 19, 2016 ended in a bizarre waiver of the dismissals requested and of the new Directors nominations presented by the association of individual shareholders RegroupementPPlocal. The threatened company chairman Robert Metz had actually indicated that « a change in the majority of the Board would trigger an immediate compulsory bonds redemption by the company. » a statement that froze many sharehodlers willing to operate a serous change at the Board.
The shareholders ultimately limited their support for some external resolutions of RegroupementPPLocal association and « only » dismissed the auditors (Ernst & Young and Deloitte, a premiere! ) , it also rejected the Say and pay resolutions, the restructuring plan and elected three external candidates to the Board…
Actually the Chairman saved his seat thanks to an unexpected argument : the threat of a call on a 350 M€ 2011 outtstanding bond .
We checked that the information provided by the Chairman was almost accurate and sincere, and, if not, he would come under prosecution for any false information having produced a demonstrated market manipulation as questioned by Proxinvest’s letter to the company and the AMF.
Solocal Group actually discloses on page 68 of its reference document update :
« The syndicated loan agreement the Company further includes mandatory prepayment provisions including:
- Mandatory prepayment clause applicable in case of change of control of the Company resulting from the acquisition of shares of the Company «
Reads this clause here does not apply to Solocal Group, as the company has no controlling shareholder, but likely another provision involving the majority change at the Board…Actually an early redemption option existed in the outstanding 350 M€ 2011 bond managed then by Goldman Sachs, This one does protect the borrowers against a case of change at the Board, the company must offer to repurchase the bons a 101%…
- « during any period of two consecutive years, individuals who at the beginning of such period constituted the majority of the shareholder representatives on the Board of Directors of the Company (together with any new directors whose election by the majority of the shareholder representatives on such Board of Directors of the Company as applicable, or whose nomination for election by shareholders of the Company, as applicable, was approved by a vote of the majority of the shareholder representatives on the Board of Directors of the Company, as applicable, then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) ceased for any reason to constitute the majority of the shareholder representatives on the Board of Directors of the Company, as applicable, then in office. » But is this real therat here ?
Such protectionist complex provisions in loan contracts agreements or bond issues, are apparently frequent and they are always signed without any approval of shareholders (except in Belgium), and this raises three questions:
– These are obviously a denial of sovereignty of the general meeting of shareholders for the appointment of Directors, a principle which seems to be part of public order in France , « d’ordre public ». If this is the case all such provisions would be ineffective, and it would be good for all investors, lenders or shareholders, and managers to be aware of it.
– It is also a protection that benefits or concerns at least to the board members that are obviously « interested » or « beneficiaries » in the meaning of the control of related party transactions ; yet these clauses are evidently never submitted to the general meeting of shareholders. This is obviously a serious breach of the related party regulation and constitutes, for us, a cause of nullity at Solocal Group.
– Finally, it is, to say the least, a major element of the governance of a company which should therefore be systematically disclosed in detail in reference document which was not the case at Solocal Group. This market information issue is important and should be requested by the AMF and other regulators of financial markets : can such contractual poison pill not clearly disclosed in their governance review remain valid for lenders or directors? Actually, in this case the company appears to have willingly mis-led the investors and the lenders by claiming in the chapter XIII of its Governance Review on Items having possibly an incidence on tender offerfor the company shares a strong NO. A question mark for the dismissed auditors as well…
At Proxinvest do not think that such undisclosed key protective provision can be applicable.
October 20th. 2016
