By Catherine Cathiard, Avocat
All recently published studies show that the improvement in competitiveness and the reduction of costs are the watchwords for a large number of companies: for most companies, the time for restructuring has come. The European Company (SE) should not be absent from these concerns as it can be of particular interest for all types of enterprises and a large range of economic sectors.
Since the implementation in all European Union (EU) countries of the European Council's Regulation n°2157/2001 and Directive n°2001/86/EC introducing the European Company (“Societas Europaea” or “SE”) as a new available corporate form for companies registered in an EU Member State - with a set of harmonised rules applicable notwithstanding the Member State where the SE is located -, more than 900 SEs have been incorporated throughout the Union. France ranks in the third position for the number of SEs already incorporated on its territory.
FOR INTERNATIONAL GROUPS
The SE appears as a truly interesting corporate vehicle not only for European companies or groups but also for foreign (i.e., non-European) companies intending to carry out activity with the European market:
- The SE facilitates the penetration of the European market by non European groups (Example: Narada, a Chinese manufacturer of batteries for telecommunication, electronics and information equipment sectors, incorporated with its European partner Eltek, a supplier of energy and transmissions systems to the telecommunication industry, a joint venture subsidiary under the SE form -Narada Europe SE- held at 60% by Narada and 40% by Eltek).
- The SE facilitated the establishment of French groups in other Member States (Example: LIMAGRAIN CENTRAL EUROPE SE for its positioning in Central and Eastern Europe).
- The SE, which allows the carrying out of cross border transactions on the basis of legal rules which are harmonised within the European space, is the favoured structure for cross-border restructurings within Europe. (Examples: The SE was chosen for the purchase by SCOR of the German REVIOS, and the merger of the German insurer ALLIANZ with the Italian RAS and the French AGF.)
- The SE status permits unification of the corporate forms of subsidiaries established in different Member States, unification of corporate governance and simplification of corporate formalities, resulting in particular in reduced administrative costs.
FOR LARGE LISTED COMPANIES
- The SE appears as a tool to perform a European project or to prepare an IPO on multiple European stock markets (Example: UNIBAIL-RODAMCO SE after the French-Dutch public exchange offer).
- The SE allows protection of the sensitiveness of the various parties involved in the context of politically tense transactions involving different major groups or in the context of a takeover (Example: The use of a SE was scheduled in the context of the takeover bid launched in August 2005 by Suez on its subsidiary Electrabel).
FOR BANKS AND INSURANCE COMPANIES
- It is not without reason that the banking, insurance, reinsurance and investment advisory service sectors clearly predominate in the list of existing SEs.
Financial businesses indeed have a common interest, linked to the management of capital based on a calculation of solvency ratios with the loosening of regulatory controls (« branchification »).
The SE has allowed those companies to improve their financial flexibility and the allocation of capital, to simplify their conditions for oversight (the “single passport” allowing the group to be subject to only one regulatory authority, that of the country of the legal entity and not of the subsidiaries).
By facilitating internal reorganization so as to operate through branches instead of subsidiaries, the SE status allows them to significantly reduce external control requirements (e.g., reporting to only one authority at the holding European Company level, better anticipating equity capital requirements and associated risks).
Examples: FORTIS, ALLIANZ, SCOR, VIEL ET CIE, PAYPAL, CHUBB, SWISS RE ...
FOR CERTAIN SECTORS (ENERGY, CHEMICALS, PHARMACEUTICALS...)
- The SE is useful for the creation of a jointly-held subsidiary, particularly between private or public legal entities. It is an efficient tool for the creation of a transeuropean network or a EU project having a political dimension.
(Example: Franco-German European spot electricity exchange: creation of a pan-european market platform, EPEX SPOT SE as joint subsidiary of the French POWERNEXT and the German European Energy Exchange with the aim of creating a European exchange for electricity spot contracts).
FOR PUBLIC PRIVATE PARTNERSHIPS, LARGE PROJECTS
- The SE has also shown itself to be an excellent means of benefiting from EU/public subsidies
(Example: Subsidies from the EU for the design and construction of the Brennerbasis Tunnel - the largest project of railway tunnel in Europe - were made conditional upon the creation of a SE between Austria and Italy, registered in Austria as Galleria di Brennero Brennerbasistunnel BBT SE).
(Example: The SWORD Group, converted to an SE, announced in the following months, the signature of a contract with the European Commission in an amount of €69 million for the delivery of computer services).
FOR MEDIUM SIZE COMPANIES
- The SE facilitates European expansion (Example: MUTAVIE, subsidiary of the MACIF group, converted into an SE in a view of developing its activities in Europe).
- The status of the SE permits the creation of a single-shareholder SE, wholly-owned by an already existing SE. It also offers a greater flexibility in corporate statutory requirement than is the case with a société anonyme, particularly as regards to corporate governance, or, for non public SE's, in the structuring of relationships among shareholders.
FOR NEW MANAGEMENT
- For a new management, the SE is definitively a "new idea" evidencing a new dynamic which can generate economies of scale while at the same time enabling a consolidation of management power (Example: project announced by EADS in the context of the arrival of Tom Enders).
FOR ALL COMPANIES
- The SE is the only tool permitting the transfer of the registered office to another Member State without resulting in dissolution of the company or to the creation of a new legal entity and benefitting from tax neutrality subject to certain conditions (Example: The French Group Foncière LFPI thus used the status of the SE for a one-time transaction involving the transfer to France of five Dutch companies, followed by the tax consolidation of the French companies).
- Beyond purely legal and financial considerations, most companies in Europe that have created a SE highlight the positive effect for them in terms of modern corporate image, and made a spotlight on a transeuropean culture or dimension which may entail an additional commercial and marketing value by strengthening the image with their clients and investors (Example : By creating 4 SEs in France the Scor Group for instance was thereby putting forward its ambition to be a company with European roots, global reach and transnational identity).
- The SE is a way to smooth out national differences to prepare an alliance with another group with a different nationality (build-up) (Example: Franco-German common holding BURGEAP-IGIP HOLDING SE).
- Adopting the SE status permits better identification of the different activities of a group (Examples: SCOR was converted into an SE and created three divisions-subsidiaries also as SEs; PIERRE & VACANCES IMMOBILIER was converted into an SE and has two divisions-subsidiaries also as SEs).
- The SE is seen as an innovative and uniform tool for approaching labor-management dialogue whatever the nationality of the employees or the country in which they operate. The labor-management aspect of the SE has proven to be an effective tool for labor-management relations It has proven in fact to be a real opportunity for dialogue within the company and can be rapidly implemented thanks to the flexibility afforded by the rules (Examples: UNIBAIL-RODAMCO, SCOR).
For all those reasons, more than a simple legal status, the SE can turn into an actual brand for companies with ambitions on the European market and France is definitely a place that European or non-European groups carrying out activities in Europe need to consider when deciding to establish a SE within the Union.