Alstom and STX deals signal new era of French pragmatism in strategic-sector mergers

29 September 2017 2:52pm

28 September 2017. By Natalie McNelis and Matthew Newman.

The French state has decided to butt out of the Alstom-Siemens deal. This week, Paris finally decided to let Italy's Fincantieri control STX France's Saint-Nazaire shipyard.

This signals a seismic shift in policy for the French government. Most observers would have expected the French government to insist on keeping control when it comes to strategic industries with thousands of jobs at stake.

But now Paris is stepping aside to let private companies take the reins — and trusting that they will go on to create new EU industrial champions.

In the past, political heat surrounding General Electric's takeover of Alstom's energy business in 2014 led the then-French minister of the economy, Arnaud Montebourg, to push for legislative changes giving France a veto over foreign takeovers in strategic sectors like energy supply and transport.
But French President Emmanuel Macron — who later that year succeeded Montebourg in the role of economy minister — is from a different mold. He's a former investment banker used to striking pragmatic deals.

Rather than insisting on retaining a stake in Alstom, Macron's minister of the economy, Bruno Le Maire, confirmed that France would forego its right to exercise options on shares held by French company Bouygues.
Le Maire heralded the "historic" 50-50 tie up between the French and German rail companies, saying that it would "reinforce" European companies' ability to compete in "an increasingly concentrated world market."

'Good omen'

The idea that France should join forces with Germany to drive European integration isn't new. In fact, this belief in the common interests of the former enemies lay at the heart of the European project 60 years ago.
For Macron, who on Tuesday used a keynote speech to call for deeper French-German cooperation, more European integration is key to tackling the rise of nationalist politics.
Eric Chaney, economic adviser to Institut Montaigne, an independent think tank, said France's stance is "pragmatic" and a "good omen" for the future, especially considering that the companies' prized high-speed rail technology isn't really state of the art anymore.  
In Chaney's view, high-speed rail will ultimately be supplanted by ground-transport systems that are less burdensome to maintain. For instance, Japan is taking the lead in "maglev" technology, where trains are held up by magnetic levitation, avoiding contact with rails.
The Alstom-Siemens deal could allow the companies to meet that challenge, and to face off against giants such as China's state-owned rail company CRRC Corp.
The same can be said for Italian shipbuilder Fincantieri's takeover of STX, France's shipyards in Saint-Nazaire.
Just a few months ago, it seemed like the deal might fall though, with Paris using its preemption rights to nationalize the STX shipyards temporarily and block the Fincantieri acquisition.  
But yesterday, Macron reached a deal with Italian Prime Minister Paolo Gentiloni that gave Fincantieri control — albeit with conditions.
While France had been insisting on maximum a 50-50 split, Fincantieri ultimately got a 51 percent share — with a safety valve. For 12 years, France can take back 1 percent if it's unhappy with Fincantieri's stewardship.
"It's impossible to overestimate what a complete change in the French political landscape this represents," said Nicolas Véron, a senior fellow at Brussels think tank Bruegel.

Common denominator 

The common denominator of these two deals is that they are both all-European affairs. Alstom-Siemens is a Franco-German deal; Fincantieri-STX France is a tie up with a venerable, 230-year-old Italian shipmaker.

If the new French government is sending a message, it's definitely a pro-EU one. France, traditionally a strong defender of the prerogatives of the nation-state, is now prepared to cede powers in strategic industries to partners in the EU bloc.
This appears to promise a more pragmatic French stance, in which the reverence once reserved for national champions is replaced by a belief that Europeans joining forces are better equipped to cope with increasing international competition.  
That's not to say that this is the first time France has backed a European champion. Paris was, after all, instrumental in the 1960s in the formation of Airbus, a consortium of European aviation companies created to compete with American goliaths such as Boeing and McDonnell Douglas.
But France — and Germany — always stayed at the forefront of Airbus and remained directly involved. To this day, both governments have minority shareholdings in the company.

What's notable about the Alstom-Siemens and Fincantieri-STX France deals now is the extent to which France is prepared to step aside, trusting private companies to get on with the business of competing on the world stage.

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