In a brief press release, Technicolor just announced suing Vector Capital “to obtain a court cancellation of the July 2012 shareholders agreement signed with Vector Capital Group”, this because of the bad blood between the Board majority and the two Directors representing the American shareholder.
Proxinvest denounced earlier by the unhealthy nature of such “governance arrangements” as a genuine allegiance imposed by some dominating shareholders or management when they deal with any third potentially active minority shareholder wishing to participate to the Board of Directors. Their idea was that another big shareholder at the Board is only acceptable if he he vows to always vote in favor of the resolutions of the leading shareholder or management group and for the strategy in place, a protectionist practice and a private interest in breach with the interests of all sharehodlers.
Proxinvest commented in his 2013 report about this July 2012 governance agreement: “Under this agreement, Vector Capital will be granted a minority representation on the Board, but will
– not seek a tender offer by a third party who has not been recommended by the Board; -maintain its shareholding for at least one year;
– not acquire, directly or indirectly, alone or in concert, 30% or more of the capital of the company for a period of 18 months;
– not table for a period of 30 months any draft resolution to the General Assembly aimed at the removal of Directors, the appointment of directors or a change in the number of Directors ;
-discuss in good faith with the company all draft resolutions to be submitted to the General Assembly for a period of 30 months;
-not vote in general meeting, unreasonably against resolutions that were approved by the Board of directors or in favor of the resolutions not approved by the Board, for a period of 30 months.
-perform orderly all transfer of company shares to avoid, insofar as possible, any adverse effect on the securities market.
It appears unhealthy to Proxinvest that the company requires Vector Capital to always vote with the Board or that they will not tender their shares to any hostile third party bid This makes the agreement an anti-takeover device that should not be supported….”
Still, this agreement was 97% validated…
In two months the 30 months’ time limit applicable to most Vector Capital commitments will occur. Accordingly to the governance agreement above, Vector Capital recovers his freedom in January 2015 to table resolutions, propose candidates and not support all resolutions of the Board while Technicolor remain committed until July 2016 to keep two director seats for Vector Capital as long as Vector holds as now 5 / 8th of its initial investment.
This case is an irony in the light of the new Florange Law March 2014 by which the socialist parliament and government thought to protect French managements thanks to the double voting rights provision actually for the only benefit of a handful of established interests (including the State as shareholder). For reasons of administrative complexity and bank costs foreign minority shareholders do not register their shares and therefore do not enjoy the double voting provision.
For Proxinvest it is a gross falsification of shareholders votes, a “banana republic type of governance” which discourages investors to invest in our French companies and increases their cost of capital. It will be actively debated in the next AGM season here.
According to the company who kindly informed us, Vector Capital has not yet registered but by registering now he could be the big winner of the Florange Act at the end of 2016 by obtaining its double voting rights, while benefiting a larger weight in terms of voting rights with respect to its investment.
On the other side, it becomes imperative for the Board of Directors to ensure at the 2015 AGM a statutory return to the principle of “one share – one vote” hoping that Vector Capital will not get the blocking minority to vote against it (one-thoird of the exercised voting rights).
November 2014
P.S. : the Daily Les Echos talks about the Florange law as a Maginot line of the
« Comme le souligne le cabinet Proxinvest, il ne manquerait plus que la loi Florange, et sa ligne Maginot des droits de vote double censés fortifier l’industrie tricolore, fasse la courte échelle aux intentions de Vector. «
