France’s ‘economic patriotism’ is not what it seems

Saturday, 25 April 2015 00:00 - - {{hitsCtrl.values.hits}}

French President Francois Hollande (C) looks at workers as he visits the Lebronze Alloys forges in Trie-Chateau, northern France PARIS (Reuters): Foreigners are set to take over several French blue chip firms this year and will largely do what they want with their prizes – showing the limits of new laws passed in the name of economic patriotism. A decree extended state veto powers on foreign bids to more sectors deemed strategic last year and legislation taking effect this year encourages double-voting rights for the state and other long-term shareholders. Economy Minister Emmanuel Macron spoke last month of the determination and the ability of the state to use all weapons available to investors to help France’s industry and further the Socialist government’s main goal of job creation. But behind the talk and the defensive rules, Thomson Reuters data show the 2014 value of announced merger and acquisition deals by foreign bidders in France was about $104 billion - more than any other top 10 world economy bar the United States – albeit as a result of a couple of particularly large deals. Part of the ‘Loi Florange’, a law named after a steelworks and designed to keep industry alive and at home, gives those who have held stock for more than two years double-voting rights unless a two-thirds majority votes for one-share-one-vote. It favours holders of large blocks of stock and investors fear it could drag on share valuations and tie management hands. It could certainly block an all-out bidder, but the state is not always the beneficiary. Corporate raider Vincent Bollore has used the tool to tighten his grip on media group Vivendi. And double voting is already in place in most French blue chips and has been a way of rewarding loyal investors since the 1960s. Companies likely to adopt it are fairly bid-proof already. Moreover, the government’s real aim in at least one such bid-proof case – that of utility GDF-Suez – was to sell part of its 33% holdings without losing influence, not to add more takeover protection. The government has declared it wants to ease its debt load by selling off 5-10 billion euros’ worth of state holdings. French cement group Lafarge, which has both double voting and dominant shareholders, is about to be acquired by Holcim of Switzerland. Club Med, bought last year by China’s Fosun, and Steria, acquired in an all-French deal by Sopra, also had double voting rights. “The law will crystallise some positions and it might render some transactions harder to achieve, but ... the 2014 transactions figures that relate to companies that had double voting rights in place show that this did not hold true at least for the most recent months,” said David Revcolevschi of international law firm Paul Hastings. For him, a recovering market, weakening euro and the presence of industry consolidation candidates are the main drivers for international interest this year. Traders in Paris say possible takeover targets include Vallourec and CGG in the energy sector and pharma players Genfit and Innate Pharma. On broader protectionism issues in strategic industries, Revcolevschi added, “I don’t think this (in France) is really different from what you would have in the U.S.”