Out-Law News | 16 May 2014 | 9:48 am | 3 min. read
In an official decree published this week the French government granted itself powers to veto foreign takeovers of companies in the energy, transport, telecoms, water and health sectors. The move extends a 2005 decree which allows the government to veto foreign acquisitions of companies in the technology, defence and betting sectors.
Any proposed foreign acquisition in these sectors will now need the approval of France's economy minister, according to the decree which is published in France's Official Journal, said Reuters.
French economy and industry minister Arnaud Montebourg said in a statement accompanying the publication of the decree: "With this reform, France will have a clear and efficient legal framework comparable to that in a number of other open economies within and outside Europe. This new measure will of course be applied in a selective and proportionate manner, taking into account the merits of each situation."
Under the decree, government approval will be required for all foreign takeover bids for affected companies, as well as bids for parts of companies and in cases where a foreign investor plans to purchase more than a one-third stake in a company. The extended powers, which one French official has described as a "nuclear weapon", according to the Financial Times, will become effective within 24 hours of its publication on Thursday.
The extended powers come amid French government concerns at the on-going attempt by US company General Electric to purchase the energy operations of France's Alstom for $13.5 billion.
According to the Financial Times, Montebourg wrote in an article in France's Le Monde newspaper that the decree was a “choice of economic patriotism”.
“We can now block sales and demand conditions," Montebourg wrote. "It is an essential rearmament of public power. France cannot sit back while other states are acting. With this decree, we are rebalancing the balance of forces between the interests of multinational businesses and the interest of states, which are not always aligned."
“Alstom falls within the scope of this decree like other strategic enterprises," said Montebourg. "You have to remember that Alstom is an essential link in our energy independence.” The decree brings France in line with other European countries including Italy, Spain and Germany, he said.
Mergers and acquisitions expert Christophe Clerc of Pinsent Masons, the firm behind Out-Law.com, said that the decree will face close scrutiny from the European Commission and has been carefully drafted to "pass the test of EU law".
Paris-based Clerc highlighted that the decree only applies to activities that are "essential to the protection of the country’s interest regarding public order, public security and national defence". In relation to transport, the country’s interest is defined as the "integrity, security and continuity of the exploitation of transportation networks and services".
"The decree will create the need for foreign investors to hold more frequent discussions with the Ministry for the Economy and, when appropriate, to file a request for authorisation," said Clerc. "The proportionality rule imposed by EU law, and endorsed by the ministry should lead to authorisations being granted in the great majority of cases."
"I think this decree shows a frustration at the absence of any EU industrial policy," Clerc said. "There is a feeling that this creates a competitive disadvantage with countries like the US, China, Japan or Korea. Combined with stringent EU anti-trust regulations, it is often seen as preventing the development of EU companies whose size would be more in line with that of the EU economy, considering that the EU’s gross domestic product is the largest in the world."
Both GE and the German company Siemens are proposing to buy Alstom's energy operations, whose interests include making turbines for nuclear, hydro, gas and offshore energy generation.
The French government gave Alstom a financial bail-out a decade ago, said Reuters, and it is regarded by many in France as a symbol of the nation's engineering prowess. The takeover bids have been the subject of widespread public debate in France.
Montebourg has openly criticized the proposed Alstom-GE deal, fearing the impact on French jobs and prestige, according to Reuters, and has instead advocated a European tie-up with Siemens.
According to the Financial Times Montebourg has also said the government has no preference between GE and Siemens, but is seeking an alliance, rather than a takeover, for Alstom. According to the newspaper, the French government has not ruled out approving the GE bid, but has demanded significant changes and wants Alstom to take seriously Siemens' rival proposal.
The French measures come amid concerns in other European countries about foreign takeover bids. Earlier this month the leader of the opposition in the UK Ed Miliband wrote to prime minister David Cameron calling for a strong public interest test to apply when major UK businesses in the science field are the subject of potential takeovers by foreign companies. Miliband made the recommendation amid what he described as "concerns" with US life sciences business Pfizer's on-going bid to acquire pharmaceuticals giant AstraZeneca, which is headquartered in London.