The Privatization of Rhône-Poulenc, 1993 - 1162 Words

The Privatization of Rhà ´ne-Poulenc, 1993 Every government is subject to political pressure and finding a consensus between political and financial aims is difficult. In practice, some choices may not further the company s long-term development. Regarding the main goals of the French government, the privatization of Rhà ´ne-Poulenc (RP) is supposed to raise funds (essential to cut budget deficit) and decrease new government participation in the French economy. Through privatization the government hopes to add industrial diversity and liquidity to the equity market, which is currently undeveloped and laws should be modified to promote its development. The French government wants employees to own shares in their companies to†¦show more content†¦For each share purchased with the employee’s own funds, a French bank would lend them funds to purchase nine additional shares (up to 500 shares total). Employees would then place all ten shares in the bank’s custody a s collateral for the loan. Employees would be prohibited from selling the shares for 4.5 years except under unusual circumstances. The loan could be repaid at the end of 4.5 years either from the employee’s pocket or through sale of the shares. BT would guarantee employees a minimum of 1.25 times the money employees put up to purchase the shares. In exchange for this guarantee, BT would take 1/3 of any price appreciation at the end of 4.5 years over the public offer price of 150Ffr per share. In terms of financial contracts this would be a combination of options (employees’ option to sell stock after 4.5years) and futures (BT’s obligation to pay 1.25 times employees’ personal contribution). This alternative seems to be fair for employees in the case of price depreciation, because they will have a secure profit. If shares appreciate, they will earn 33.7% of return per share less than in A1, but will also earn it on a higher amount of shares. Therefore, it is important which effect prevails. Moreover, with BT’s proposal employees lose share ownership, unless they decide to pay with their own resources. The deal corresponds to the needs of