(News Bulletin 247) – The proposed law on the attractiveness of France was adopted at first reading Tuesday evening by the Senate. This text introduces the principle of shares with multiple voting rights to boost IPOs. The Senate also, via an amendment, opened the way to split shares in France.

The proposed law on the attractiveness of France passes a new stage before its full adoption. The Senate gave the green light at first reading to this text. According to Agence France Presse, deputies and senators will now try to agree on a common text within the framework of a joint committee.

This bill from Renaissance MP Alexandre Holroyd aims in particular to strengthen the attractiveness of the Paris stock market via a set of key provisions.

The flagship measure is certainly the introduction of preferred shares, that is to say shares with multiple voting rights, which are different from ordinary shares. To simplify, a preferred share could, for example, be allocated 10 voting rights, compared to just one for an ordinary share.

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Guardrails

This type of distinction is common in the United States but is sometimes also used by European groups. During its IPO at the end of 2022, the German manufacturer Porsche issued preferred shares, without voting rights but with an increased dividend, distinguishing them from ordinary (unlisted) shares. The idea being that this system allows existing shareholders of Porsche (i.e. Volkswagen) to retain control.

“This option (shares with multiple voting rights, Editor’s note), open in most of the world’s major financial centers (…) has the main advantage of promoting the listing of innovative small and medium-sized enterprises (SMEs), particularly in the field of tech, by guaranteeing their founders or their managers that they will be able to maintain control of the strategic choices of the company after the IPO, and thus carry out their development project”, underlines the report of Senator Louis Vogel.

The measure should therefore boost IPOs in Paris, by further encouraging founders and business owners to take the plunge.

“The objective is clear, to put an end to a handicap for Paris in the arbitrations of companies to choose their first listing place”, explains a report by another senator, Albéric de Montgolfier.

Essentially, it is also about equipping ourselves with weapons to face competition from the New York Stock Exchange, the London Stock Exchange, but also from Amsterdam.

The current text provides for several measures intended to avoid “drifts”. The duration of these preferential shares would be limited to ten years, renewable once for five years, the ratio between their allocated voting rights and those of ordinary shares cannot exceed 25 to one, and it would not be possible to transfer them to a other person.

A Senate amendment adopted at first reading also proposes “fair” compensation for holders of preferred shares whose multiple voting rights have been “neutralized” in the context of a public takeover bid (OPA). The conditions and modalities would be determined by the Council of State after advice from the Financial Markets Authority (AMF).

Government considers split shares

Second major measure of this proposed law: allowing risk mutual funds (FCPR), the heart of private equity in France, to invest more in shares listed in France.

The text proposes to raise the market capitalization ceiling of the companies in which these funds can invest to 500 million euros compared to 150 million euros previously (still up to 20% of their assets at most). According to estimates from the Senate Finance Committee, the number of eligible companies in France would increase from 417 to 505.

Beyond these two provisions, the Senate adopted a specific amendment, tabled by the government. It provides that the government is empowered to take by order, within twelve months following the promulgation of the law, measures to create a “scheme for splitting shares, bonds, or shares in collective investment undertakings”.

Fractional shares allow an investor to buy part of a share, which can be interesting if the nominal value of this share is high and therefore prohibitive. The Robinhood platform in the United States, for example, offers small holders the opportunity to purchase fractional shares. This allows these individual shareholders to acquire, for example, the stock of Berkshire Hathaway, Warren Buffet’s investment company, whose nominal value currently amounts to… 619,250 dollars (for the class A share).

In France, for example, this could give a boost to investing in shares in the luxury sector, whose par value is several hundred or even several thousand euros, or in aeronautics shares, which exceed 100 euros. .

“The price of certain shares can amount to several hundred euros, such as that of Thalès (sic) which costs more than 150 euros, or even exceed a thousand euros like the Hermès share which exceeds 2,000 This price can constitute an insurmountable obstacle to investors who would like to support French flagships but cannot. This phenomenon can also be found on bonds or fund shares”, explains the purpose of this amendment. .