Vol 14 (2017) - Issue 6

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Share Buy-Back Programs in Times of Economic Downturn: The French Perspective

A number of listed companies have decided to buy back their own shares while the main purpose is to raise capital through the issue of their common shares. The same can be said for non-listed companies. The authors analyse the rationale behind such counter-intuitive behaviour meaning that companies spend hard-earned money to reduce their share capital. We also comment on the attractive aspects of these programs in times of low growth and on the legal framework applicable to issuers whose shares are traded on Euronext Paris and to non-listed companies.
On the European side of the Atlantic, listed companies have increasingly been seduced by what share buy-backs programs may have to offer. Such programs have gained in popularity, including in France. Prior to this recent change, share buy-back programs had a rather bad press in France as they were generally associated with transactions carried out by companies unable to attract investors, due to their losses, or considered as inappropriate spending.
This mindset is clearly changing as companies with significant amounts of cash have favoured this tool over external growth opportunities with a limited return on investment expectations. So much so that in 2016 alone, it appears that more than EUR 9.5 billion was spent on share buy-back programs in France. The most noticeable ones have been Sanofi (for approx. EUR 2.9 billion), Vivendi (for approx. EUR 1.6 billion) and Schneider, L'Oréal, LVMH, Vinci, Airbus and Saint-Gobain (each for an amount of approx. EUR 500 million).
On reflection, there are numerous reasons why it may be beneficial to a company to repurchase its own shares.