The writer is a senior partner at Bredin Prat, a law firm
France’s rejection of the proposed acquisition of Carrefour by the Canadian group Couche-Tard is the latest example of the French tradition of strongly protecting national champions.
True, “food sovereignty” was cited as the reason for the move, on the grounds that deals that require foreign direct investment screening include those that affect “food security”. But this assertion of food sovereignty is unconvincing. The French market has a sufficient number of competing food retailers.
Furthermore, it is difficult to imagine Carrefour struggling to make its food products available, just because a foreign investor owns a controlling stake. The French state would have been within its rights to impose conditions on the takeover and to block it if Couche-Tard had refused to accept them. For sure, France has had bad experiences in the past when investors acquiring control of French companies have given commitments but have not respected them. However, under a French law passed in May 2019, failure to comply with such commitments is punishable.
France, like other European countries, has drawn up a list of “sensitive” sectors in which certain takeovers need government approval. This list, which was extended after General Electric sought control of Alstom’s energy operations in 2014, has grown over the years. Food security was added in a new rule that took effect last year.
Former premier Edouard Philippe once said: “Yoghurts and shampoos are not strategically important. The companies that produce them are!” This underlined that, for the French state, the priority is not just to protect business sectors but to save jobs and keep corporate decision-making in France.
To refuse a potential investment in advance, without discussions about any constraints the investor might be willing to accept, says everything about what the state is up to. It is economic protectionism, pure and simple. At a time when economic sovereignty figures high in political debate and a populist public mood is averse to foreign investments, it was apparently difficult for France to let control of a major retailer with 100,000 employees go to a foreign investor. The paradox is that Alstom has just completed its acquisition of the rail unit of Bombardier, the Canadian group.
Yet France fails to acknowledge that it is relying on European foreign direct investment rules to protect flagship companies, whatever sectors are concerned. It would, in fact, be possible for the government to achieve its aim by using EU regulations, since they allow member states to protect their economic public order — a concept that can include the defence of major companies. It should be remembered that in March 2019, the EU adopted a regulation that provides a framework for screening foreign direct investments.
This regulation provides for the possibility of investment screening if the investment “is likely to affect security or public order”. It sets out, as an illustration, a long list of protected sectors of activity, including notably transport and health.
When screening is based on the list of sensitive sectors, investment in a company that is not in a protected sector cannot be banned, even if the company can be considered of national importance. Canada has chosen to make any investment in a Canadian company exceeding a certain “enterprise value” threshold subject to prior authorisation by the minister of industry. France could have the same approach without such a mechanism infringing the EU’s 2019 regulation.
The applicable criteria would, of course, have to be defined in detail. Turnover, the number of employees, research and development capacities, integration within the economic fabric or contributing significantly to an economic sector could be used as a basis for such a screening process.
A certain number of these criteria would have to be met for the state to exercise its control and make the transaction subject to review. These criteria should be precise, so as to protect only the companies that make an essential contribution to economic public order.
Having taken the decision several years ago to deter foreign takeovers by drawing up a list of “sensitive” sectors, France is on shaky ground when it seeks to protect companies solely because they are deemed to be of national importance.
It would be preferable for France to lay its cards on the table, as certain other countries have done, rather than showing itself to be interpreting the rules in an unfair way. The French authorities should not forget that foreign investors always take into consideration respect for the rule of law when they plan investments.