Alain Levy Gwenaëlle de Kerviler Valérie Attia March 4 2020 Private M&A transactions: new regulations strengthen French state control over foreign investments AYACHE | Corporate Finance/M&A - France Alain Levy, Gwenaëlle de Kerviler, Valérie Attia Corporate Finance/M&A IntroductionClarified and extended scope of controlClearer, quicker and simpler procedureCommentIntroductionFollowing the introduction of EU Regulation 2019/452 on 19 March 2019 and the Action Plan for Business Growth and Transformation law (PACTE) on 22 May 2019, a new decree and ministerial order were published on 31 December 2019 and will enter into force on 1 April 2020.These new regulations reinforce the state control over foreign investments in France and clarify the applicable regime (for further details please see "Private M&A transactions and PACTE: part one" and "Private M&A transactions: new decree on foreign investments enters into force").Clarified and extended scope of controlThe prior authorisation of the French minister of economy must be obtained if a foreign investor contemplates investing in a French entity whose activities (detailed by decree) are critical for public order, safety, security or national defence.The decree introduces the new concept of chain of control in the definition of a 'foreign investor' and stipulates that any entity or individual that is part of a chain of control may also qualify as a foreign investor. The decree additionally widens the definition of 'control' by adding the criteria of determining influence (eg, through contracts or rights) to the usual shareholding and voting rights test.With respect to the definition of 'investment' and the list of sensitive activities, the decree abandons the previous distinction based on the location of a foreign investor and proposes a single definition and list for such concepts.The definition of an investment (ie, acquisition of control, acquisition of a branch of activity or holding of a percentage of an entity) has been amended by reducing the holding threshold from 33.33% of the share capital or voting rights of an entity to 25% of its voting rights.The list of sensitive activities has been widened to include:written and online press activities (on politics and general matters);food safety; andresearch and development with respect to critical technologies (ie, cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies and energy storage).Clearer, quicker and simpler procedure Preliminary questionA target's right to ask the French administration prior to the investment whether it falls within the scope of the French foreign investments regime is now also granted to the potential investor (subject to the target's prior approval).Prior authorisation request, procedure and delaysAccording to the new decree, within 30 business days (instead of two months as under the previous regime) from the receipt of a prior authorisation request, the French minister of economy must inform the potential investor whether:the investment is subject to the prior authorisation procedure;the investment is subject to the procedure and has been approved without condition; orthe investment is subject to the procedure and further analysis is required in order to determine if/which conditions could protect national interests in the context of such investment.Contrary to previous regulations, if the minister of economy fails to answer within the abovementioned timeframe, the authorisation is deemed to have been rejected.Information to be provided in prior authorisation requestsThe information to be provided by potential investors in the context of a prior authorisation request is specified by the ministerial order and is far reaching. The information concerns potential investors, target entities or branches of activity, their respective group and the foreseen investment.For instance, the following information must be provided:the potential investor's chain of control;the strategic reasons for the investment;the list of activities or clients of the investor, target entity and their respective group, their French and foreign competitors, the markets in which they operate and any equity-based relationship or significant financial support granted to the investor or its group from a state or a governmental organisation outside the European Union in the past five years;any involvement of the target in specific projects of interest to the European Union or any financial support from EU funds; andthe list of countries where the investment will be notified pursuant to the merger control and foreign investment control regulations.Exemption to prior authorisation regime and re-examination of prior authorisationThe decree refines cases where a foreign investment would be exempted from the prior authorisation regime by reducing the previous threshold of 33.33% to 25% and by exempting cases where an investor that had received the authorisation to acquire 25% of an entity subsequently acquires the control of such entity (provided prior notification with respect to this new investment has been sent to the French minister of economy and not expressly refused). The decree also provides exceptions to such exemptions.The decree also indicates the circumstances in which a prior authorisation may need to be re-examined following the request of an investor or by decision of the minister of economy.Daily financial penaltiesIn addition to PACTE, which authorises the minister of economy to impose a daily financial penalty (in case of foreign investments made without prior authorisation or in case of non-compliance with conditions set out by a prior authorisation), the decree stipulates that the daily maximum amount of such penalty will be equal to €50,000.CommentThis new set of regulations takes into account the complexity of the existing structures of investment in private M&A transactions and allows a better understanding of the context of the contemplated transaction by the French administration.For further information please contact Alain Levy, Gwenaëlle de Kerviler or Valérie Attia at AyacheSalama by telephone (+33 1 58 05 38 05) or email ([email protected], [email protected] or [email protected]). The AyacheSalama website can be accessed at www.ayachesalama.com.