Boards Yield to Activist Shareholders
French companies also faced greater pressure from activist shareholders. Large firms--such as auto part maker Valeo--that successfully put down proxy challenges last year, have placed activist shareholder representatives on their boards this year to avoid repeat proxy fights.

Investment firm Wendel won board representation as a result of negotiations with construction firm Saint-Gobain. Wendel increased its stake in the Courbevoie-based company from 5 percent in September 2007 to more than 20 percent in March 2008. Since long-term registered shareholders have the opportunity to gain double-voting rights in accordance with Saint-Gobain’s bylaws, management saw Wendel’s investment increase as a threat to board decision-making and wanted to remove the double-voting rights provision. After negotiations, the company offered three board seats in exchange for a March 20 agreement by Wendel not to exercise more than 34 percent of its total voting rights at shareholder meetings.

There was greater influence by British and U.S.-based funds this year. New York-based hedge fund Pardus Capital and Centaurus Capital of London have been fighting to increase shareholder value at Valeo and information technology firm Atos Origin.

Pardus partner Behdad Alizadeh was accepted as a director nominee to the Valeo board on May 21. Pardus, which failed to win seats in a proxy contest last year, wanted the company to spin off six divisions, including its transmission and headlamp manufacturing operations, Bloomberg News reported in April. The fund relaunched its proxy battle this year, angling for two seats and a third independent director before reaching a settlement with Valeo’s board, according to the Reuters news service. Under that agreement, Pardus can double the voting rights of its near-20-percent stake, but cannot exercise more than a 20 percent vote at shareholder meetings, and the fund must not seek board seats with major Valeo competitors, according to a company press release. “We think Valeo is worth four times more than its current stock price,” Karim Samii, president of Pardus, told France’s La Tribune newspaper.

Activist shareholders also obtained board representation at Paris-based Atos Origin. In April, Pardus and Centaurus raised their collective stake in Atos to 22.3 percent. The funds demanded the dismissal of supervisory board Chairman Didier Cherpitel and a company restructuring. The company and the funds announced a settlement in late May, which included the resignation of Cherpitel. Alizadeh and a Centaurus representative, Benoît D’Angelin, will serve on the supervisory board under the condition that they agree to support management proposals in the future and will resign if the funds’ ownership falls under 5 percent, according to a May 28 joint press release by the company and the funds.

“Having active shareholders willing to get involved in the management of the company stabilizes the capital of French listed companies,” Colette Neuville, president of the Association de Défense des Actionnaires Minoritaires (Minority Shareholder Defense Association), told the Dow Jones news service. “[M]anagers had become used to running companies without being accountable. Active shareholders break that habit,” Neuville said.

Suez/Gaz de France Merger
Shareholders in Gaz de France and Suez, a French-Belgian owned utility company, will vote at separate meetings--both on July 16--to approve a long-awaited merger. The deal, brokered in 2006 by former French Prime Minister Dominique de Villepin, will produce Europe’s largest gas importer and purchaser. More than 35 percent of the new entity, GDF Suez, will be controlled by the French government, which will also have a deciding “golden share” in investor decisions to protect the French energy supply chain. The new GDF Suez board will also have 24 members--extremely large for any public company worldwide--for a short time after the merger to ease transition.

The merger will also result in the spin-off of Suez’s waste water treatment division, Suez Environnement, into a separate company with 35.4 percent of its shares under GDF Suez control. The firm will come into being with a bon Breton in place--the French moniker for warrants convertible to shares in the case of a hostile takeover attempt--named for Finance Minister Thierry Breton.

The French government legalized anti-takeover defenses in 2006, and investors have noted an increase in the number of bons Breton and other “poison pill” defenses in 2008. Thirty-one proposals to authorize the board to issue shares to fend off a takeover were put forward in the first half of this year, compared with 33 for all of 2007, and 40 proposals to issue bons Breton, up from 37 last year.

While shareholders approved most of the proposed defenses, they rejected voting-rights ceiling measures at Veolia Environnement and ophthalmic equipment manufacturer Essilor, and a double-voting rights proposal at construction firm Eiffage Group. Bons Breton at computer consulting firm Capgemini and heavy equipment manufacturer Vallourec were proposed but ultimately were not put to a shareholder vote.

L. Reed Walton contributed to this article.