We live again in interesting times. Over the last few weeks, most of us feverishly asked ourselves which soccer team will win the World Cup. During the same period, observers following international business developments around the world were placing their bets on whether or not the French government would allow General Electric to acquire French industrial giant Alstom. Difficult to say which of the two questions was more difficult to answer, but now we know the answer to both. Germany vs. Argentina 1:0; Competition vs. Industrial Policy 0:1.
From a competition law and policy point of view, the proposed link-up between the US and French firms should not raise any conceptually novel issues. Competition law and policy are no longer novel disciplines. The existing tool-box is sufficient to deal with whatever issue there may be to preserve competition. US law now has 125 years of experience in dealing with mergers, the EU roughly 25, if you do not take into account older merger control rules at member state level. Since the Sherman Act was adopted in 1890, and soon followed by the Clayton Act in 1914, much debate has dealt with the question of whether antitrust law and policy should tolerate business combinations and to what extent. Different economic policy schools have emerged over the decades, focussing on the quest for allocative efficiency, or on maintaining a sufficiently competitive market structure. However, under all historically relevant antitrust doctrines that have ever been applied in the US or Europe, the GE-Alstom deal could be properly analysed.
So why not let the regulators do their job? Instead, the French government, rushed to pass a decree that allows the French government to block virtually every acquisition of a French company. Under EU law, which favours the freedom of capital throughout the EU, such “golden shares” are allowed, provided they satisfy the criteria established by the EU Court of Justice: (i) the state’s veto right has to be motivated by overriding requirements of the general interest (which as an exception to the rule have to be interpreted narrowly); (ii) the exercise of the veto right must be proportionate and (iii) procedurally the veto right can only be exercised within a defined window of opportunity following advance notification of the planned investment. Until recently, French law provided for strategic veto rights in the fields of security and defence only. The new decree extends these veto rights to five new sectors: water, health, energy, transport and telecommunications. In fact, the same government member who pushed the new decree only recently threatened an undesired third country investor with a tax audit, should he not abandon its plan to acquire a French telecoms operator.
The French government´s concern over the GE-Alstom deal is, there is no other word for it, protectionist in the most literal sense of the word. And the French government makes no attempt to hide it. After having favoured a link-up with Siemens (that was reportedly rejected because of Siemens’ partnering with Mitsubishi), the French government has also been working on a Plan C, a purely Franco-French solution to the problem: a nationalisation. Now the final outcome appears to be a mix of the GE bid with a large State-owned share giving the French government far-reaching veto rights. The French government even had to persuade current Alstom shareholder Bouygues to cede its shares to it, and secured the voting rights as of now pending the acquisition of the shares over the next two years. It remains to be seen whether the government will succeed in financing this investment by selling other holdings, as it has promised the taxpayers.
It also remains to be seen whether the French legislation to block the planned transaction satisfies the requirements of the Court of Justice´s case law. In the meantime, from a competition law and policy point of view, the French government´s move brings the 19th century back to the front page. For decades, the question as to whether a particular merger control regime leaves room for non-competition and industrial policy considerations has been used by academics, policy makers and organisations such as the OECD, as a benchmark to assess whether emerging markets were ripe for the big game alongside their more developed peers. That it is, out of all governments around this globe, the French government that pulls out the protectionist stick so bluntly, is quite shocking although it does not really come as a surprise. France has always had a strongly developed culture of industrial policy and State interference in business, but normally things were done in a slightly more subtle, more discreet and more elegant way. From a transatlantic viewpoint, this chapter will certainly add to the feud, and become a topic on the TTIP agenda. Supporters of sound merger control policies now ask themselves a third question: is this just a short-term flash in the pan as retaliation for BNP, or a new, longer chapter in the story of tortuous government interference in the freedom of contract in Europe?