Proxinvest seized the French market Authority AMF on September 1st on the question of the integrity of the conditions of Nokia’s exchange offer for Alcatel-Lucent shares as a result of various subsequent decisions by the Board of Directors of Alcatel modifying generously the remuneration terms for the departing CEO Michel Combes ( exceptional allocation of performance shares, payment of a non-compete three years rent and exceptional payment of a supplementary pension after two years of activity). The AMF on the wake of the press scandal opened an instruction of the case.
Prxinvest congratulates the French Financial Markets Authority AMF for its early July 2015 then confidential letter to Alcatel-Lucent about several non-compliances, a letter threatening the company… to be mentioned in the AMF public report of October 2015. Under pressures of the press and the market, including the public complain by Proxinvest, the Alcatel-Lucent Board halved the benefits offered to Michel Combes to € 8 million € instead of fifteen million. Proxinvest still insists that the Commission des sanctions be seized by the AMF Board.
Hereunder are the many questions to the company about the accuracy of the statements made in defense of these benefits by the interested person on August 31 st are asked by Proxinvest.The letter finally suggests the Regulator that shareholders control powers on remuneration and related parties transactions control be strengthened by law.
We summarize hereunder the text of this letter available in French on this site.
To Philippe Camus, Chairman of the Board, Alcatel Lucent
Dear Mr. Chairman :
Proxinvest, who as proxy advisory firm was actually the only European analyst in 2006 advising against the proposed merger of Alcatel with Lucent, had positively welcomed the announcement 15 April 2015 the merger proposed with Nokia.
This merger proposed by Alcatel-Lucent as a strategic solution to the difficulties of the group, included a public statement on the fate and the remuneration of the French Managing Director, Mr. Michel Combes. This letter wishes to question all at once the further observance by specific Board decisions on the one hand and also the integrity of the shareholder communication at end in August 2015 following the debate launched by the release on the amount of benefits granted to the outgoing executive Director.
I / Have the conditions of the merger with Nokia remained consistent or not with the conditions presented to shareholders and market authorities in early April 2015?
In a 3 August 2015 press release the company indicates that Michel Combes will benefit from a non-compete compensation for a period of three years paid by the award three years 1,467,000 Alcatel-Lucent shares or the equivalent in Nokia shares. This therefore valued the equivalent of 4.5 million euros at the current rate, a cost of dilution that will support the long-term shareholder in the new entity. Five questions are asked here: • Was the early announcement of the personal waiver by Michel Combes of severance pay, which was in fact obsolete due to the not satisfied performance conditions, misleading the public? • Was the contract of the Director General not including on signature in 2013 any type of competition ban? Would the possible absence of such a non-compete clause a serious failure on the part of the directors? • Does the late announcement of this compensation non-competition not modifies the conditions of the merger with Nokia as announced to the market and the Market Authority in April 2015? • Is the company announcement that the non-competition indemnity will be subject to the procedure for regulated agreements under Article L225-42-1 of the Commercial Code not misleading the market as Nokia will hold most of the shares, then?. For the proper functioning of the market, should we not expect the approval of shareholders in general meeting prior to the execution of such compensation (the Press mentions the delivery of a first tranche of shares in September 2015)?
Two questions relate to the performance units remiited to the CEO in 2013, 2014 and in March 2015 on condition of presence of three years and with performance conditions measured over three years. Michel Combes in a JDD weekly promised on April 19, 2015 “I will not receive any of the amounts of these performance units”
But a company statement from late April indicated that “the presence condition is suppressed and its rights are definitively acquired.” The lifting of the presence condition and performance conditions led to an allocation of acquired 2,685,000 performance units granted in 2013, 2014 and 2015, the equivalent of € 8 million at current stock price.
In the same press release also stated that because “the very particular circumstances of the merger” the 700,000 options that were promised to Michel Combes would be converted into a maximum of 375,000 free shares with no conditions other than Units Performance, the equivalent of 1.1 million euros at current prices. • Was the not denied comment of the JDD April 19 about the non-remittance of performance units a misleading information?
- Does the lifting of the conditions of presence and performance on performance units Is not constitute a “post employment benefit” which should have been submitted to the vote of the General Assembly (see first paragraph Article L225-42-1 of the French Commercial Code)?
Finally, in a subsequent press release of August 3rd., the Board of Directors attributed 100% of benefits accrued under the supplementary AUXAD pension where the person concerned did not meet after two and a half years to comply with the present conditions of AFEP MEDEF reference initially granted. This annuity € 50,000 per year represents the actuarial equivalent of about 1.2 million euros. So, not to mention the 2015 bonus that will probably attributed to the CEO under his performance in 2015 (expected around 2M €…), the shareholders can assess the ultimate benefits granted by the directors of Alcatel Lucent to the former CEO up to a total of over 14.8 million euros (non-competition indemnity + alternative performance units + options + pension)
.. In conclusion, the initial sobriety of the company message announcing a merger not without sacrifice or risk for the employees and shareholders was found successively belied by various Board decisions about who can give the impression of market manipulation or a false information.
II Was the defense brought in late August by the company and its CEO as to the assessment of remuneration of Mr Combes accurate and sincere?
On Monday, August 31, in an interview granted to the Echos, Michel Combes declared himself “proud of the work” at the head of the telecom equipment by stating “it means that I managed to create value.” Can he then say and do write without seriously distorting reality, “the share value has increased four to five times? The title was trading at 1.06 euros at the arrival of Michel Combes and rating date 2,988 euros and never exceeded only once for hours the 4 euros level. How can he say publicly “I wore the full industrial risk,” while his personal investment in the company was only 500 shares, or approximately € 500 at the time of his arrival and that the company was paying him 1.2 million euros of fixed salary, and an annual variable bonus of 804,000 euros for 2014?
How can the Director General affirm «all elements of compensation were made public in May and presented to the general meeting of shareholders, there was absolute transparency”. But this argument is misleading in respect of some additions that have been made public on August 3 and not subject to the General meeting. For the record, the vote says “Say On Pay” of the AG proposed to shareholders in 2015 was on the remuneration components awarded under 2014 did not expressly mention the lifting of the performance conditions and presence of performance units and mentioned the absence of any non-competition indemnity.
Please accept, Mr. Chairman our concern for a better shareholder democracy in our country and accept the assurances of our highest consideration.
Loïc Dessaint Pierre-Henri Leroy
Directeur général Président
