Download Restructurings in France

Restructurings in France – the France Telecom arrest
A precedent that could change the face of restructuring in France - and inevitably how French
private equity deals are priced and implemented - is being played out in the French criminal courts
as the former head of France Telecom, Didier Lombard, was released on police bail in July 2012 over
charges of “Moral and institutional harassment” of his workforce. Mr Lombard has been accused of
miss-managing a restructuring of the French giant in 2008. The implications for private equity are
very clear as management teams looking to restructure will need protections for this risk and deals
will be re-priced to include a discount for this uncertainty.
Between 2008 and 2009 over 30 employees apparently took their own lives following the
announcement of a restructuring plan promoted by Mr Lombard. We understand that the suicide
rate is not far out of line with the national average but some employees cited work pressures as a
reason for taking their lives. It was enough to halt the restructuring plan and to get the CEO arrested
following a critical report by government labour inspectors. Around 22,000 job losses were proposed
with a further move of 10,000 into different positions with performance criteria introduced for the
170,000 workforce. Whilst the method of implementation may have been insensitive and the
outcomes tragic, if we assume for one moment that management’s intention was to do what was
right for the company, the consequences for managers and their PE owners seeking to restructure
companies are profound, particularly if Mr Lombard is ultimately imprisoned.
In fact, regardless of the outcome the case will have wide ranging implications for investors looking
to France as an investment opportunity. It was the report by French government-appointed labour
inspectors that warned that the management techniques imposed during the restructuring had a
"pathological effect" on employees' morale and undermined their "physical and mental health".
This is a new one for us. We have seen management lock-ins, and situations where employees have
received such large pay offs to leave that the enterprise has been brought to its knees and I think all
professionals respect the Gallic view that employment protection is a priority not universally shared
in the UK and US. We have never worked in a restructuring where management has been brought
before the courts. Particularly so for doing what they felt was in the best interests of the company.
France Telecom is a large employer driven by political considerations that may well outweigh
commercial considerations but management, effectively stripped of the right to manage, becomes
ineffectual and impotent. That cannot be right.
Adrian Doble
Partner
FRP Advisory
10 Furnival Street
London
EC4A 1YH
Tel: +44 (0) 20 3005 4277
Mobile: +44 (0) 7767 205680