France’s election of a free marketeer bodes well for M&A
26 May 2017. By Natalie McNelis and Matthew Newman.
If past behavior is anything to go by, France's new president, Emmanuel Macron, will let the market determine the fate of domestic companies subject to foreign takeovers.
Yet the 39-year-old president's CV may prove something of a political liability in a country where a swashbuckling approach to mergers and acquisitions doesn't always fire up the collective imagination.
Indeed, Macron's previous role as a pro-market government adviser and an M&A specialist with commercial bank Rothschild may reveal itself to be at odds with an electorate which hasn't bought in to globalization.
That could prove problematic. As the new president approaches French legislative elections in June, he will need to broaden his political support and engage with those political forces clamoring for greater protection.
This could explain why, shortly after his election, Macron made some noises about curtailing unbridled globalization and insisting on reciprocity — for example, that French investors should have the same rights in a foreign country as that country's investors have in France.
His comments, which coincided with similar pronouncements by the EU, suggested that decisions about which investor can acquire a controlling stake in a French company should include a careful examination of the quid pro quo.
Yet fears that Macron will cave in to his country's misgivings about globalization are probably overblown. He's shown in his words and actions that he's a staunch defender of foreign trade and investment.
The fight for Alstom
When General Electric made a bid to buy Alstom's energy business in 2014, Macron was in French Socialist President François Hollande's inner circle, serving as his deputy chief of staff.
Some credit — or blame — Macron of having "convinced" Hollande to allow the acquisition by les Américains to take its course.
Others close to the deal tell MLex another story. They say the media exaggerated Macron's role and that the GE/Alstom deal would have happened with or without his intervention.
Alstom, the 89-year-old company best known for designing and building France's high-speed trains, was an icon of the French industry when American conglomerate GE started working on its acquisition.
Resistance to the deal was high. Hollande's minister of the economy at the time, Arnaud Montebourg, balked at an American company taking control of part of one of France's proudest endeavors.
Montebourg tried to prevent it, arguing that a foreign takeover of a strategic player in the energy industry amounted to a threat to France's security.
The economy minister even went so far as to orchestrate the extension, by decree, of the French state's veto power over foreign takeovers, to cover companies active in the fields of energy supply, water, transport, telecoms and public health.
It was a line in the sand, but Hollande, flanked by Macron, was willing to cross it. They fended off the opposition and allowed the deal to take its course — despite intense political backlash.
Now, GE did have to make a lot of promises to get the deal through — agreeing to create jobs, establish headquarters in France and create several joint ventures with Alstom.
But recall: GE was rebuffed a few years earlier, when it tried to buy part of French state-controlled nuclear company Areva in 2009. Then, the government would only agree to sell to French companies — Alstom and Schneider Electric.
Montebourg and Hollande didn't see eye to eye on economic policy in more ways than one. By the time the Alstom deal closed, Montebourg had stepped down as Hollande's economy minister.
His replacement? Emmanuel Macron.
Macron, who worked for the French investment bank Rothschild from 2008 to 2012, has consistently defended free-market principles.
As a banker he was an M&A specialist, advising titans of global industry on multi-billion dollar deals. For example, in 2012 he brokered an $11.85 billion deal between food and beverage company Nestlé and Pfizer Nutrition.
Macron has been consistent in maintaining his pro-market and free-trade stance — for example, he offered full-throated support to the EU's trade accord with Canada, the Comprehensive Economic and Trade Agreement.
His campaign for president also relied on a broadly free-trade platform, arguing that French industry would become more competitive if it were more open to international competition.
Macron will have to walk a thin line in trying to persuade his compatriots that globalization needs to be harnessed rather than shut down. But investors and companies needn't worry too much about their deals getting caught up in anti-free-market rhetoric in Macron's France.
After all, throughout the campaign, Macron stuck to his pro-market guns — even when doing so was politically fraught. An example of this was his reaction to the threatened closure of the Whirlpool dryer plant in his hometown of Amiens.
The far-right leader Marine Le Pen ambushed him there during the campaign, promising Whirlpool workers she'd save their jobs by nationalizing the plant temporarily rather than allowing it to decamp to Poland.
Despite the political pressure, Macron refused to take the bait.
Facing a crowd of angry workers in Amiens, he said that Le Pen had been lying when she said she'd save the plant. He stuck to his free market beat, insisting that the solution to the factory's woes was not to nationalize the plant and batten down the national hatches.
Macron only promised that he would make sure the layoff conditions for closing the facility were fair.
In any event, the French president's power to intervene in foreign buyouts is limited.
The executive has the power — brandished in the context of the GE-Alstom deal — to veto a foreign takeover of a French company in "strategic" industries.
This veto power sits somewhat uneasily with EU merger-control rules.
EU law says that an individual country can only intervene in a merger being reviewed by the EU for reasons of national security, media plurality or financial prudential rules.
But what constitutes a threat to national security is, to some extent, in the eye of the beholder. For example, it would be hard to apply the security defense to something like Whirlpool's tumble-dryer production facility.
While the EU didn't formally challenge France's intervention in the GE/Alstom deal, it made its displeasure clear.
And if the merger is being reviewed by the French competition authority, the government could intervene on the grounds of public interest — but to date, that has never happened.
As for Macron's espousal of reciprocity, that criterion wouldn't be a problem for a US company like GE. The US market is open to French investors.
The prospect of Macron getting personally involved in vetting foreign acquisitions may also prove unlikely. The president has already indicated that he will set policy guideposts, but allow his ministers to take the operational lead.
That being the case, it may soon make more sense for those with an interest in the administration's M&A policy to start parsing the sentences of Bruno Le Maire, who last Wednesday was named Macron's minister of the economy.
The political clamoring for greater protectionism is something Macron will also have to grapple with. He encountered such arguments on the campaign trail and, according to his close adviser, Jean Pisani-Ferry, Macron's engagement with the people he met was "formative."
For example, in a speech that he gave on France's Labor Day, May 1, he said that he had heard the "fear and doubts" of those worried about "untenable" globalization that weakens the working classes and destroys the environment.
But he argued for a "change" to globalization, not a rejection of it. He said to cut France off from the world "would not make sense." Rather, he said he'd fight for France's values to be protected in the context of a globalizing world.
And no matter how you look at it, the symbolism of this election shouldn't be downplayed. France, a country where leaders from both the right and the left have traditionally treated globalization with caution, even disdain, has elected a free marketeer as its president.