Corporate Governance and Regulatory Impact on Mergers and Acquisitions

4.6.3 Shareholders’ meetings

Shareholders’ meetings at Rhône-Poulenc were called according to the French

law, as well as those of Aventis. Hoechst’s general meetings were called accord-

ing to the German law.

Holders of Rhône-Poulenc shares had to deposit their shares at least 5 days

prior to the general meeting to have the right to attend. Hoechst shareholders

had to deposit their shares no later than the end of the seventh day before the

meeting. Aventis has the same restrictions with Rhône-Poulenc but reduces the

term to 2 days before the meeting.

At Rhône-Poulenc, notice of the general meetings had to be published in the

French Bulletin des Annonces Légales Obligatories (BALO) and had to comply

with all the information required in the French law. The case of Hoechst was sim-

ilar but complying with German law. Aventis’ notices are more like those of Rhône-

Poulenc, but they introduce new technological ways of communicating meetings,

such as e-mail and any other telecommunication tools recently developed.

All three corporations allow proxies. Rhône-Poulenc allows also mail voting,

and Aventis introduces videoconference and telecommunication tools as means

to vote. The general rule is that each share carries one vote, but Rhône-Poulenc

and Hoechst had special multiple voting rights depending on the year in which

the shares were acquired. Aventis does not have any of multiple voting rights.

All resolutions at general meetings are passed by the simple majority rule at

Rhône-Poulenc, Hoechst, and Aventis.

Table 4.9 summarizes the requirements and procedures of the shareholder

meetings in Rhône-Poulenc, Hoechst, and Aventis. Although there are minor

differences between Rhône-Poulenc and Hoechst prior to the merger, we can

conclude that the resulting requirements at Aventis are even more stringent than

in the founding companies.

4.7 Conclusion

Extensive academic research has documented a strong association between

good investor protection and measures of financial development. In the area of

cross-border mergers, Bris and Cabolis (2004) present evidence that sharehold-

ers of a company that is acquired by a firm operating in a more protective

corporate governance environment realize substantial gains. The use of large

samples of cross-border mergers necessarily abstracts from issues of private

contracting between merging parties. Nevertheless, the design of the corporate

governance framework that the new merged entity adopts is of crucial

importance, and it is addressed in this chapter.

We explore in detail the corporate governance provisions in Rhône-Poulenc,

a French company, and Hoechst, a German firm, and the resulting structure

after the two firms merged in 1999 to create Aventis, legally a French corpora-

tion. We show that, despite the nationality of the firm, the corporate governance

96 Corporate Governance and Regulatory Impact on Mergers and Acquisitions

Corporate governance convergence through cross-border mergers: the case of Aventis 97

Table 4.9 Shareholder meetings

The table shows the shareholder meetings for the two merging companies and the resulting Aventis. We determine the most protective

system between the two merging companies. The last column compares the most protective system with the resulting characteristic in

Aventis.

Rhône-Poulenc Hoechst Most protective Aventis Is Aventis the most

protective system?

Deposit of shares Within 5 days before Within 7 days Within 3 days

meeting before meeting before meeting

Notice of Published in BALO Published in official Published in Published in ✓

meetings (Bulletin des Annonces bulletin official bulletin BALO (Bulletin

Légales Obligatories) des Annonces

Légales Obligatories) ✓

Proxy voting YES YES YES YES. Videoconference

and telecomm-

unication tools

are allowed

One-share, YES YES. Multiple YES YES ✓

one-vote rule voting rights

depending on the

year of acquisition

of shares

Majority rule Simple majority Simple majority Simple majority Simple majority ✓

(Source: Companies’ Bylaws, Annual Reports, and SEC Filings)

(Continued)

98 Corporate Governance and Regulatory Impact on Mergers and Acquisitions

Table 4.9 (Continued)

Rhône-poulenc Hoechst Most protective Aventis Is Aventis the most

protective system?

Unitary system Two-tier Two-tier Two-tier Two-tier ✓

Members 12–18 members 20 members 12–18 members 16 members ✓

Employees on 3 (16–25%) 10 (50%) 3 (16–25%) 4 (25%) ✓

the board Individuals and

who can be a corporations Only individuals Only individuals Only individuals ✓

member of the

board

Ownership limits At least 10 shares No limit At least 10 shares At least 1 share ✓

to become a

member of the

board

Term 6 years 5 years 5 years 5 years ✓

Age limit At most, 65 years old No restriction At most, 65 At most, 1/3 of

years old members 75

years or older

Frequency of As often as necessary At least once every As often as Once every quarter

meetings 6 weeks necessary