Takeovers of French companies, already among Europe’s least targeted, are about to become even less desirable.
Seeking to fend off hostile takeovers and limit plant closings, the French National Assembly yesterday adopted rules that would give employees a bigger say over bids. The bill, which also forces companies with more than 1,000 employees in France to document attempts to find a suitable buyer before shuttering a plant with more than 50 workers, is expected to become law once it has been discussed and voted in the Senate and then passed by parliament.
“It projects an image of protectionism in France, and that’s not how we’re going to fix our problems,” said Thibaut De Smedt, a partner at Bryan, Garnier & Co., which handles French corporate-finance transactions. “In the M&A world, the image of France viewed from outside is deplorable, and this law is adding extra complexity.”
Foreign companies have spent $14.8 billion on French targets this year, putting 2013 on track to be the weakest for such deals in at least a decade, according to data compiled by Bloomberg. The new rules may further dissuade potential buyers. France hasn’t seen a major hostile takeover since Mittal Steel Co. bought Arcelor SA in 2006 in a transaction then valued at about $36 billion.
The attempt to keep potential predators at bay comes even as French companies remain among the world’s most acquisitive. LVMH Moet Hennessy Louis Vuitton SA (MC) and Schneider Electric SA are among companies making $135 billion of takeovers since the start of last year, exceeding most nations in western Europe aside from the U.K., according to data compiled by Bloomberg.
“The measures were clearly thought up by people living in the last century,” said Jean-Pierre Martel, a founding partner at Orrick Rambaud Martel, who advised on French drugmaker Sanofi’s takeover of Aventis in 2004. “It’s implicitly aimed at foreigners and meant to defend French interests. It’s ridiculous. The biggest French companies have significant foreign investors and are very international. Seen from abroad, this will scare everyone.”
The debate over protecting French interests has been a political hot potato since Canadian aluminum maker Alcan Inc. bought French rival Pechiney SA a decade ago, eventually breaking it up and shutting plants. More recently, ArcelorMittal, the world’s largest steelmaker, decided to shutter a plant in France in the north-eastern city of Florange.
The plant was the site where French President Francois Hollande pledged a few months before being elected in May 2012 to pass a law forcing large firms to sell rather than close sites to cap unemployment, which now stands at a 14-year high.
The Socialist president, whose popularity is at a record low, is trying to make good on that campaign promise after being accused by some unions of caving in to ArcelorMittal when he ruled against a proposal by Industry Minister Arnaud Montebourg to temporarily nationalize the Florange plant last December.
The event is a central episode in the minister’s just-released book “La bataille du made in France,” on defending the country’s industry in the face of “large corporations with questionable behavior.”
With the bill, Hollande is seeking to re-burnish his credentials with his base. To its opponents, the bill asks potential buyers to stay out.
“The provision forcing a search for a buyer of sites before their closure could be interpreted as telling foreign investors not to invest in France,” Jean-Claude Rivalland, a partner at Allen & Overy LLP in Paris, said in an interview. “In terms of perception, this could be a disaster.”
Even without the law, the state has not been shy about blocking deals. One such example this year was the failed attempt by Yahoo! Inc. to invest in YouTube’s smaller rival DailyMotion, a unit of phone operator Orange SA (ORA), in which the state is the single-biggest shareholder with a 27 percent stake. Orange Chief Executive Officer Stephane Richard had sought to sell a majority stake in DailyMotion to expand the brand and finance research.
Industry Minister Montebourg summoned executives of the two companies to the finance ministry in April, giving them a dressing down and accusing the Orange executive of selling one of France’s “crown jewels,” said a person with direct knowledge of the discussion. The deal was abandoned.
The new rules would add a level of complexity to a process that foreign buyers already deem cumbersome.
Under the new rules, the workers’ committee of a target company will be able to name an accountant to assess a bid and would have a month to render its non-bidding view, which would be required before the board of the target company publishes its official response to a takeover offer.
The works council could ask a judge to intervene if it feels it didn’t get satisfactory responses to its queries, potentially delaying any deal.
“The reforms will make everything much more complex, particularly when the works council intervenes,” Martel said.
The law would also force a company with more than 1,000 employees that wants to close down a site to look for a buyer for three months.
If it fails to do so or turns down a “serious” offer, a judge may impose a fine of up to 20 times the minimum wage for each job loss, or a maximum of 2 percent of annual sales.
“Our labor legislation is particularly constraining and is scaring off a lot of people, while foreign investment could help our economy,” Olivier de Vilmorin, an M&A lawyer at Sullivan & Cromwell LLP in Paris, said in an interview. “The proposed bill isn’t likely to make France more attractive to investors.”
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