Activist hedge fund Elliott Management Corp. and its French tech consultancy target Capgemini SE face the same test: Do they mean what they say?

Capgemini SE this week buckled to pressure from Elliott and other minority shareholders, raising its bid for local rival Altran Technologies SA. The uplift, half a euro per share, or 4%, is a derisory carrot to tempt refuseniks to accept a deal widely considered cheap. But Capgemini is also wielding a stick: A statement that it won’t make another offer to buy Altran for 18 months if shareholders snub this one. What’s more, if it secures a small majority of the shares, it won’t offer to buy additional stock at above the new 14.50 euros ($16.14) per share bid price over the same period.

That self-imposed constraint is tactically innovative. It’s designed to quash any attempt to force Capgemini to pay even more, whether for simple control or full ownership. Doing so would be a huge loss of face in view of what it has said.

There are limited formal arrangements in France’s M&A regulations that bind companies to final offers or the financial terms of repeat bids. That contrasts with the U.K., where an offer can be formally labelled “final” and then cannot be raised even with the target’s consent. That way, investors who decide to buy, or not buy, shares based on a bidder pronouncement won’t find themselves being caught out by a sudden sweetener.

Capgemini’s statement seems categorical on not re-bidding or paying more later but this is unusual territory, and investors could be forgiven for questioning how binding the words are and under what circumstances they’d lose force. What if there’s an approach for Altran from another suitor? Could Capgemini then enter an auction if both sets of shareholders and both boards wanted it to? This seems unlikely, but people will wonder. In practice, it’s hard to see how Capgemini could wriggle out of its commitment without facing sanction or a lawsuit.

On the face of it, Altran shareholders have a simple choice between Capgemini’s offer and reverting to their company’s strategy for independence. Altran has some punchy 2022 targets. If met, there’s a plausible argument that the shares would go above the bid price. The fact that Altran’s board backed the original Capgemini offer in June suggests it sees some risk in the plan being delivered. Shareholders may also worry that the suitor is being firm on price because it knows something they don’t, thanks to its due diligence.

For Elliott, its credibility and patience face a test. It has opposed an offer at this level as undervaluing Altran. Eighteen months isn’t such a long time to wait if this deal is rejected; while Capgemini has other M&A options, Altran’s size makes it uniquely attractive. Capitulating to the offer would probably deliver only a small profit to Elliott because the fund built its position when the shares were already trading at about 14 euros. That would be vastly outweighed by the dent to credibility from caving in. Still, it wouldn’t be the first activist to settle for less than it asked for and act like it was a major victory.

To contact the author of this story: Chris Hughes at chughes89@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

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