Solocal Group: shareholders make it an “extraordinary” general meeting in France

Shareholders at Solocal Group, the former French Yellow Pages company, and a major Internet advertisement player in the country, put the ‘extraordinary’ into the company’s EGM of October 19 by voting to replace the company auditors, reject management’s dilutive refinancing plan and three pay packages, and impose three new external directors; something of a historic shock in French corporate governance.
Following a six month campaign, RegroupementPPSolocal, the individual shareholders association of Solocal Group, a profitable but heavily indebted post LBO group, succeeded in voting through the above changes despite support for management by shareholders including Paulson, Amber, Monarch, Rothschild & Co, Lazard, and BNP Paribas. The EGM lasted five hours until 11 p.m. in the Aubervilliers suburb of northern Paris. In six months, starting from nothing, and thanks to the gifts and support of many small shareholders, RegroupementPPlocal, often meeting at Proxinvest, gathered 1600 members and reached over 10% of the company’s capital. Shareholder representation in France has traditionally been scattered among associations of generally less than 300 members, some of them clearly not independent from the companies themselves. The concerns about the Solocal Group’s accounts, the postponement of its AGM and the complex and highly dilutive refinancing plan presented by the company became widely spread thanks to a quiet, but strong press campaign by RegroupementPPlocal. Its concerns were also the basis for several auditors and directors dismissal proposals tabled at the EGM. The increasing numbers of shares supporting its workinduced other shareholders to back their external resolutions. The outcome of the votes was fascinating:
First, the rejection of the usual renewal of two of the ‘big four’ auditors Ernst & Young and Deloitte was a first in France.
Second, three say-on-pay votes concerning the chairman, the CEO and the deputy CEO were rejected; similar to pay dissent at Renault earlier this year.
Third, the minority group limited its success to the three seats on the board, but this was itself a milestone in French corporate where the appointment of external candidacies is extremely rare.
The EGM also raised a highly contentious point about corporate governance ‘poison pills’. The company threatened the shareholders association at the EGM with the claim that a change of a majority of the Directors at the Board would trigger a provision in a 2011 Luxembourg-issued, €350m eurobond to offer a repurchase to the bond holders. Such bond covenant provisions are not uncommon. Bankers use them also for some major lending deals.
However, assuming here that the provision would have been fairly disclosed to shareholders by the company the question for all investors is the consideration of these provisions in company governance analysis, and the conditions for the legal validity of these deterrent bond poison-pills.
Proxinvest has written to the AMF French regulator for clarity on the issue: Link