France seeks crackdown on short sellers and activist investors
France is seeking new ways to crack down on short-sellers as the country reacts to a growing wave of activist investors targeting some of its best-known companies.
A cross-party government commission published recommendations on Wednesday aimed at preventing short-sellers and activists from destabilising French corporates.
These included widening the disclosures of short positions to derivatives instruments, pushing for more transparency around the borrowing and lending of stock, and investigating whether market functions are jeopardised once short selling reaches a certain volume of shares.
The push against short sellers comes amid increasing activist activity in France and an investigation by the French markets regulator, the AMF, into prominent US short-seller Muddy Waters’ attack on French retailer Casino. Muddy Waters, which closed out its short position in Casino in 2016, is under investigation by the AMF for market manipulation.
The non-legally binding report also suggests lowering the level at which shareholders must declare their position from 5 per cent to 3 per cent; introducing a fast-track procedure for companies that want to bring cases before the regulator; and allowing companies to respond to activist attacks in so-called quiet periods before results are published.
“These suggestions appear to be about trying to balance the powers in the market,” said Charles-Eduard van Rossum, president of Ravel & Co, an investment banking boutique. “In the past the government might have gone for a more ‘French approach’ and taken a much harder line.”
The report was presided over by Eric Woerth, president of the finance commission and a member of the centre-right opposition party Les Républicains, alongside Benjamin Dirx, a member of President Emmanuel Macron’s governing La République en Marche.
It follows French finance minister Bruno Le Maire’s suggestion in March that France would seek more measures to push back against activists, including potentially using public funds to defend companies it deems strategic and at risk from attack.
The finance commission took feedback from numerous market participants and advisers while compiling its report, including activists Muddy Waters, Third Point, Elliott, CIAM and Amber; investors Aviva and BlackRock; companies such as Casino and Pernod Ricard; and advisers including Lazard and Schulte Roth and Zabel, according to people briefed on the discussions.
Historically, France has been a tough market for activists to crack given the high levels of family ownership, laws that give long-term investors double voting rights, and a perception that the French establishment rallies around some of its most prestigious companies.
In 2005, French food group Danone’s shares soared on speculation of a bid approach by PepsiCo. Before a bid was made or announced, the French government swooped to defend France’s interests, drafting a law designed to protect companies in “strategic industries” from foreign takeover — dubbed the Danone Law.
The slate of recommendations come amid an increasing activist presence in France.
Drinks maker Pernod Ricard has come under pressure from activist fund Elliott Management, which has also taken a position in Altran, an engineering consulting group that is being acquired by rival Capgemini. EssilorLuxottica, riven by a governance struggle between its French and Italian partners, is also being targeted by Dan Loeb’s Third Point, which has built up a small position in the newly-merged eyewear giant, according to people familiar with the group.
French activist fund CIAM has led a campaign at Scor, while media group Lagardère and waste and disposal utility Suez have been under attack from London-based hedge fund Amber Capital.