Why France Said ‘Non’ to a Deal With Yahoo!

The Dailymotion app Photograph by Chris Ratcliffe/Bloomberg

Arnaud Montebourg has done it again. Less than 6 months after he threatened to nationalize a steel mill to prevent layoffs, France’s industry minister has sparked a fresh uproar by blocking Yahoo! from buying a majority stake in French online video site Dailymotion.

Dailymotion is now owned by state-controlled France Télécom, which wanted to sell 75 percent of the business to Yahoo, in a deal that would have given Chief Executive Officer Marissa Mayer a platform to create a rival to Google’s YouTube.

Montebourg vetoed the sale because he wants Dailymotion to remain a French company. In an interview today on Europe 1 radio, Montebourg said he would have OK’d a cross-shareholding agreement between Yahoo and Dailymotion, similar to the alliance between French automaker Renault and Japan’s Nissan Motor. But, he said, “Yahoo wants to devour Dailymotion. I said, ‘No, it will be 50-50.’ We want a balanced development.”

The move stirred a rare public show of anger from France Télécom CEO Stéphane Richard against the group’s controlling shareholder. “Dailymotion is a subsidiary of Orange [France Télécom’s brand name], not of the state,” Richard said in an interview published today in the business daily Les Echos.

Others warn Montebourg is scaring away foreign investors and discouraging French entrepreneurs who aspire to sell their startups to global companies. “It sends a very bad signal to the outside world, saying that because you aren’t French, we prohibit you from being involved,” says Christophe Chausson, managing partner of Chausson Finance, a Paris-based venture capital group. “To develop startups, you have to do the opposite of what the government has done. Dailymotion needs a lot of capital, hundreds of millions of euros, to develop and buy rights to content.”

Lauren Armstrong, a spokeswoman for Yahoo, declined to comment when contacted by Bloomberg News.

France Télécom built a 100 percent stake in Dailymotion over the past two years at a cost of €127 million ($166 million). But, spokesman Tom Wright told Bloomberg News, “For Dailymotion to develop in the future and grow, it needs to find a strong, strategic partner—probably in the U.S.—to open the doors to the U.S. market.”

That dovetails with Mayer’s push to build Yahoo’s content holdings in order to make it a more robust competitor to Google and Facebook. The Dailymotion deal would have been one of her biggest acquisitions to date. Dailymotion has about 110 million unique visitors per month—far less than YouTube’s 1 billion-plus. But it has built significant audiences in Europe and Asia and has started to make inroads in the U.S.

France Télécom now will resume its search for a partner for Dailymotion, a person with knowledge of the situation told Bloomberg News today.

Perhaps the most poignant reactions to the collapse of the Yahoo deal came from Dailymotion’s co-founders, Benjamin Bejbaum and Olivier Poitrey, who started the company in Poitrey’s Paris apartment in 2005. “It shouldn’t have been THEIR decision,” Poitrey posted on his Twitter account on April 30. He recently moved to Silicon Valley to head a team that’s developing Dailymotion’s mobile offerings.

Added Bejbaum in a tweet today: “On Monday, there was hope. On Thursday we freaked out. The French economy is not a toy.”

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