France Inc. Darling Macron Loved No More as Orange Deal Fails

  • The business-friendly minister draws from dirigiste playbook
  • Failure wiped out more than 9 billion euros in market value

France Inc. may be falling out of love with Economy Minister Emmanuel Macron.

The 38-year-old former banker was seen as the business-friendly face of the Socialist government, with his anti 35-hour workweek comments and straight talk making him the most popular minister in President Francois Hollande’s cabinet. Then, he weighed in on a deal for the country’s largest phone company to take over the No. 3 mobile operator, making last-minute demands that derailed four months of talks.

Emmanuel Macron

Photographer: Matthew Lloyd/Bloomberg

The deal that would have consolidated France’s phone market fell apart Friday, with all parties involved laying the blame squarely at Macron’s door as the failure wiped out more than 9 billion euros ($10.2 billion) off the market value of the country’s four mobile operators on Monday. It adds to a growing list of Macron’s intervention in business, from Renault Nissan’s shareholders rights and Areva SA’s overhaul to Electricite de France’s risky deal in the U.K., showing that the minister is drawing on France’s age-old dirigiste playbook.

“At the end of the day he’s a politician,” said Tomasz Michalski, a professor at HEC, an elite French business school.

In his defense, Macron said on Monday that he was looking out for the industry’s workers and consumers of phone services. “It’s an odd country where people expect a minister to be in cahoots with corporate players instead of defending the general interest,” he said.

Toughest Market

Industry observers question whether he has really served the general interest.

Orange SA had been in talks to buy the phone business of Bouygues SA and sell some of its assets to Numericable-SFR SA and Iliad SA with a view to ease competition and boost investment in one of Europe’s toughest mobile markets. The price wars in the industry had increasingly made the market untenable for the smaller players, forcing them to cut costs and shrink investments on their networks.

“The bottom-line is that France could be the last big market in Europe with four carriers -- that’s not positive for the country,” Orange Chief Executive Stephane Richard said in an interview after the talks failed. “Having a dogmatic stance of always prioritizing consumers and short-term purchasing power over industrial logic and investments -- that’s catastrophic."

Macron’s demands, on top of the complexity of the transaction, the number of players involved and the distrust of the rivals who were having to team up, doomed the deal.

State Role

With the French state the largest shareholder of Orange and playing the role of the defender of consumer rights and jobs, the government had been kept in the loop from the beginning, four people involved with the talks said. 

Then Macron laid out his conditions. Orange’s Richard and Martin Bouygues, CEO of the eponymous company, were taken aback by Macron’s tough demands when he met separately with them on March 24, the people said. The minister’s stance made them pessimistic about achieving an agreement, they said.

Macron demanded a higher valuation for Orange shares and asked that Bouygues’s potential stake in Orange be capped at 12 percent. He also asked for a standstill clause to prevent Bouygues from raising its stake in Orange over a period of seven years, and a restriction on double voting rights for 10 years, said the people who declined to be named because the talks were private.

Shares Tumble

A week later, the talks collapsed. Investors felt the impact on Monday, when shares of Bouygues, Orange, Iliad, Numericable and its parent, Altice, were the five worst performers on the Stoxx Europe 600 Price Index. Orange declined 6.2 percent, wiping 579 million euros off the value of the state’s shareholding.

Shares Plummet

Macron’s mixing of governmental roles is a classic for French ministers who demand a say in deals involving big companies that are both major employers and industrial powerhouses.

The state holds shares in Orange and many other companies, including planemaker Airbus, airline Air France, car-makers Peugeot and Renault, and utilities Engie and EDF, through its fund Agence des Participations de l’Etat or APE and through its other sovereign wealth fund Bpifrance SA. Both funds have struggled for independence from political meddling in recent years.

Macron’s Agenda

Macron’s interventions haven’t been limited to the telecommunications sector. Last year he increased the state’s shareholding in Renault SA to block an effort to strip the government of its double voting rights. He also blocked the sale of Dailymotion SA to a Chinese buyer, calling the Paris-based alternative to YouTube a strategic asset. More recently, Macron sought to be involved in Nokia Oyj’s takeover of Alcatel-Lucent SA.

He has been in the driving seat to push EDF’s Hinkley point project, a controversial 18 billion-pound construction of a new nuclear power plant project in the U.K. The company’s chief financial officer, Thomas Piquemal, quit last month, protesting the financial burden the project would pose.

Macron is backing Areva’s talks with TVO and Siemens to find a solution to cost over-runs at a Finnish nuclear plant, while also helping broker EDF’s planned acquisition of a majority stake in Areva’s troubled reactor unit. Areva and EDF are both majority owned by the French state. He met with EDF CEO Jean-Bernard Levy on Tuesday.

Not Montebourg

In 2014, Macron’s predecessor Arnaud Montebourg was criticized for his hands on approach in the Alstom SA - General Electric Co. deal, which he eventually signed off on. An unapologetic admirer of Louis XIV’s finance minister Jean-Baptiste Colbert -- who advocated state intervention in business -- Montebourg crafted a decree requiring foreign investors to seek government approval in areas such as energy, equipment, plants and transportation if deemed critical for national security.

French business had hoped Macron would be different. The one-time banker with Rothschild & Cie worked on the team that advised Nestle SA’s $11.9 billion purchase of Pfizer Inc.’s Wyeth infant nutrition business. That was before he joined Hollande’s cabinet in May 2012. His deal analysis skills then had to be broadened to industrial analysis, labor market issues and voter concerns.

Macron, who had said publicly he wasn’t opposed to the Orange-Bouygues deal, was the ghost writer of a report entitled “Liberate Growth” by shadow adviser to French presidents Jacques Attali in 2008, when France had three mobile phone companies. In the report, Macron had called for the creation of a 4th telecom operator, one stakeholder of the failed deal ruefully notes.

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