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Law and policy
Policies and practices
What, in general terms, are your government’s policies and practices regarding oversight and review of foreign investment?
In principle, foreign investment in France is not subject to public oversight or authorisation. However, foreign investment in certain ‘sensitive sectors’ are subject to prior governmental authorisation.
The current regulatory framework is likely to be supplemented or replaced by European regulations as the European Commission proposed in September 2017 a European legal framework for screening foreign direct investment in the European Union referred to as the ‘State of the Union 2017 - Trade Package’. The proposed European regulation is under consideration by the European Parliament.
The European regime would be based on the principle of equal treatment among foreign investments of different origin, a cooperation mechanism between the member states of the European Union and the European Commission, and a screening of foreign investment by the European Commission (on grounds of security or public order) for cases in which foreign direct investment in an EU member state may affect projects or programmes of European interest.
As a first step, the European Commission set up a coordination group on inward foreign direct investment to, inter alia, identify sectors and assets that have strategic implications (from a security, public order or control of critical assets point of view) at national level, cross-border level or at European level. By the end of 2018, the European Commission shall also carry out an in-depth analysis of foreign direct investment flows into the European Union, focusing on strategic sectors (such as energy, space and transport) and assets (key technologies, critical infrastructure, sensitive data) whose control may raise concerns for security or public order reasons.
What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?
Originally, a French law of 1966 on foreign exchange provided for a general principle of freedom regarding the financial relations between France and other states, subject to the safeguarding of national interests. This law empowered the French government to adopt specific regulations regarding acquisitions and investments by foreign nationals and investors, or companies in strategic sectors and to define appropriate reporting and approval procedures, either by way of declaration or prior authorisation.
This regime was replaced by Law No. 2004-1343, adopted on 9 December 2004, which empowered the French government to police foreign investments. Several governmental decrees and orders were subsequently taken to cover specific business sectors and infrastructures, all of which being codified in the French Monetary and Financial Code.
The latest major evolution on the regulatory framework was the adoption of Decree No. 2014-479 by the former French Minister for the Economy, Arnaud Montebourg, on 14 May 2014, by which the scope of the French prior authorisation regime was substantially extended.
The former oversight regime (including by way of declaration) was largely abolished by Decree No. 2017-932 adopted on 10 May 2017.
Scope of application
Outline the scope of application of these laws, including what kinds of investments or transactions are caught. Are minority interests caught? Are there specific sectors over which the authorities have a power to oversee and prevent foreign investment or sectors that are the subject of special scrutiny?
The French regulations on foreign investment apply to material investments (first condition) made by a foreign investor (second condition) in a French company (third condition) operating or involved in a regulated sector (fourth condition).
First condition: a material investment
A material investment can be either the acquisition of a controlling interest in a company (in the case of a share deal) or the acquisition of all or part of a branch of activity of a company (in the case of an asset deal).
In the case of a share deal
The acquisition of a ‘controlling interest’ in a company means that the investor will:
- hold, directly or indirectly, a fraction of the share capital conferring the majority of the voting rights in the shareholders’ meetings of the company;
- hold the majority of the voting rights of the company by virtue of an agreement entered into with one or more other shareholders;
- determine, in fact, by its voting rights the decisions in the company’s shareholders’ meetings; or
- have the power to appoint or dismiss the majority of the members of the administrative, managing or supervisory bodies of the company.
In this regard, an investor who will hold, directly or indirectly, more than 40 per cent of a company’s voting rights is legally presumed to have a ‘controlling interest’ in that company, provided that no other shareholder holds, directly or indirectly, a more important part of such voting rights.
Also, an investor is legally presumed to have a controlling interest in a company, jointly with others, if the group of persons or legal entities acting together determines, in fact, the decisions taken in the shareholders’ meeting of a company.
For investors from non-EU or EEA member states, the crossing of the threshold of one-third of a company’s share capital or voting rights is also a trigger for the application of the French regulations on foreign investment.
In the case of an asset deal
The acquisition of all or part of a branch of activity of a company constitutes a material investment triggering the application of the French regulations on foreign investment.
What is to be considered as a ‘branch of activity’ or as a relevant part thereof is not defined in the regulatory framework. No legal presumptions or thresholds apply in this case.
Second condition: a foreign investor
A foreign investor is a foreign resident or a company whose registered office is located outside France.
Third condition: a French company
A French company is a company whose registered office is located in France.
Fourth condition: a regulated sector
Regulated sectors depend upon the origin of the investor:
For investors from other EU or EEA member states, regulated sectors are: encryption and decryption systems for digital applications; businesses privy to classified defence information; weapons, munitions and explosives for military applications or equipment used in warfare; businesses contracted to design or supply specified equipment or services to the French Ministry of Defence or its subcontractors; and all business activities deemed crucial to France’s national interests relating to public order, public security and national defence, namely: integrity, security and continuity of energy and water supplies, transport services and networks, electronic communication services and networks, vitally important establishments and protection of public health.
For investors from non-EU or EEA member states, regulated sectors are the same as for investors from EU or EEA member states as well as the following additional sectors: gambling (excluding casinos); regulated private security services; research, development or manufacture of means to prevent the illicit use by terrorist networks of biological or toxic agents, and associated health-related risks; communications interception equipment; security audit and certification for IT systems and contracted provision of security services in IT sectors for specified public- and private-sector entities; and dual-use items.
How is a foreign investor or foreign investment defined in the applicable law?
A foreign investment is defined as an investment made by a ‘foreign investor’ (see second condition in question 3) in a ‘French company’ (see third condition in question 3) or in all or part of a branch of its activity (see first condition in question 3). This definition includes investments made by French non-residents.
Special rules for SOEs and SWFs
Are there special rules for investments made by foreign state-owned enterprises (SOEs) and sovereign wealth funds (SWFs)? How is an SOE or SWF defined?
There are no specific rules for investments made by foreign SOEs or SWFs; SOEs and SWFs are subject to the same rules and procedures as private investors.
Which officials or bodies are the competent authorities to review mergers or acquisitions on national interest grounds?
The sole competent authority regarding the prior authorisation of foreign investments in France is the Minister for the Economy. However, as discussed below, the Minister for the Economy may consult with other governmental bodies or administrative authorities (see questions 13 and 17).
Notwithstanding the above-mentioned laws and policies, how much discretion do the authorities have to approve or reject transactions on national interest grounds?
First, with respect to the applicability of the French prior authorisation regime, the degree of discretion varies depending upon the condition at stake.
There is no discretion with respect to the qualification of an investor as a foreign investor (see second condition in question 3) and to the qualification of a company as a French company (see third condition in question 3).
There can be little discretion with respect to the qualification of the investment as a controlling interest in a company or as a branch of activity of a company or a relevant part thereof (see first condition in question 3) if the factual description of the contemplated transaction remains unclear.
There is, however, much more discretion in the assessment of regulated sectors involved (see fourth condition in question 3) given that such sectors are very broadly defined and the target may be indirectly and not primarily involved in the sector concerned.
In case of doubt on the applicability of the prior authorisation regime, the investor has the possibility to request a preliminary opinion on this applicability from the Minister for the Economy in accordance with a specific procedure. Upon reception of the written request detailing the contemplated investment, the Minister has a two-month period to issue his or her opinion. The Minister’s failure to do so does not constitute an exemption from the requirement to apply for prior authorisation. In case of positive answer, a formal filing is to be made to request the clearance.
Second, with respect to the decision of the Minister for the Economy to grant or deny authorisation of an investment, the degree of discretion is rather high having regard to the purpose and scope of the clearance tests (see question 16).
The Minister’s decisional power is not limited to granting or denying authorisation of an investment; he or she may also grant the authorisation under various conditions relating to the investment that he or she may freely impose on the investor. Such conditions typically concern the continuity of the company’s business and the sustainability of its activities; the safety of its supply chain; its industrial capabilities, research and development abilities or related know-how; the integrity, security and continuity of supply and operation of establishments deemed ‘vital’; the protection of public health; the performance of public procurement contracts or contracts concerning public policy, public safety, national defence or research or the production or trading of weapons, ammunitions or explosive powder or substances.
In the event that the Minister for the Economy denies the authorisation, he or she must provide the investor with the reasons for such denial (except where such reasons are covered by national security secrecy). A denial of authorisation may notably be based on the ground that the granting of an authorisation with conditions would not be sufficient to safeguard national interests.
What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?
There are no specific thresholds for share deals, except for investors from non-EU or EEA member states where the crossing of the threshold of 33.33 per cent of a company’s share capital or voting rights is an additional and specific trigger of the application of the French regulations on foreign investment. There are also statutory presumptions, applicable to all foreign investors (from other EU or EEA member states or from non-EU or EEA member states) regarding the acquisition of a ‘controlling interest’ in a company (see first condition in question 3).
There are no specific thresholds or statutory presumptions with respect to the acquisition of all or part of a branch of activity of a company (see first condition in question 3).
In this latter case and in case of applicable presumptions, it is therefore advisable to request an opinion from the French Minister for the Economy on the applicability of the French prior authorisation regime in accordance with the specific procedure set forth in question 7.
National interest clearance
What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees?
Clearance of transactions and other investments requires the filing of an application for authorisation with the Minister for the Economy. There is no filing fee.
The application must contain information on the investor, on the target of the investment and on the investment itself.
Regarding the investor: if the investor is a publicly traded (listed) company, it shall disclose the identity of the shareholders holding more than 5 per cent of its share capital or voting rights, and provide a list of its board members (including their names and addresses); if the investor is a privately held company, it shall disclose the names and addresses of the individuals or legal entities having the ultimate control of the investor, and detail the chain of control; if the investor is a fund, the identity of the fund manager must be provided.
Regarding the target of the investment: the application must contain the target company’s corporate name, address, registration number, details on its business activities and the turnover and financial results of the most recent fiscal year.
Regarding the investment itself: the application must contain the shareholding structure before and after the contemplated transaction; if applicable, the purchase option on the remaining share capital; the total transaction value; the financial terms and conditions of the transaction.
French regulations do not provide for a specific filing date or deadline, albeit the application must be submitted prior to the closing of the contemplated transaction, clearance being a condition precedent and taking several months (see question 11).
Which party is responsible for securing approval?
The investor is responsible for obtaining the clearance in due time. In practice, if the acquisition is friendly, it is common practice that the French seller or its adviser assists and cooperates with the investor, notably by providing supporting information regarding the French company and its business activities.
How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?
The Minister for the Economy has a period of two months to review the application. This review period effectively starts from the date on which the Minister will have received a complete application (ie, from the date on which the last required document will have been submitted by the investor). This means that any request by the Minister for supplementary information will trigger a new period of two months to review the application; such new review period will start on the date on which the supplementary information will have been provided by the investor. Consequently, the authorisation procedure can in practice be extended well beyond the statutory time frame of two months.
If the Minister fails to take a formal decision within the applicable time frame, the authorisation will be deemed granted.
There is no ‘fast-track’ option.
There are two exemptions, which relate to:
- investments carried out between companies belonging to the same group (ie, companies of which a same shareholder holds, directly or indirectly, more than 50 per cent of the share capital or voting rights), except if the investment is intended to transfer all or part of a branch of a ‘protected’ activity (see question 3); and
- investors from non-EU or EEA member states, crossing the threshold of 33.33 per cent of the share capital or voting rights of a French company (see question 8), who have already been authorised to acquire control (as defined by French law) of that company.
Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?
The clearance is a condition precedent to the transaction.
In case of potential breach, the Minister for the Economy may carry out investigations and can send a formal notice to the investor requesting the latter to make observations within a period of 15 days. After this period, the measures and penalties discussed in question 15 may apply.
Involvement of authorities
Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?
It is possible and generally recommended to consult with the Treasury Department of the French Ministry for the Economy on a contemplated transaction falling within the scope of the prior authorisation requirement, prior to the filing of the application. The main purpose is to informally exchange views on the contemplated investment, including its consequences. This informal approach may significantly reduce the review period following the filing of the application for authorisation.
It is also normal practice to have meetings with the Treasury Department during the review period following the filing of the application for authorisation, in order to clarify specific points, particularly in highly sensitive sectors (eg, production or trading of weapons, ammunitions, explosive powder or substances).
Meetings with other governmental bodies and administrative regulators, which may be consulted during the review process conducted by the Treasury Department, are also highly advisable.
When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?
In most situations it is sufficient for the investor to be assisted by financial and legal advisers. In some sensitive or complex cases, the additional contribution of public affairs or lobbying specialists or sector experts can be valuable, especially for investments in a sector regulated by multiple authorities or regulatory supervisory bodies (eg, Ministry of Defence and Ministry for the Economy) as well as in highly technical or specialised sectors (eg, telecommunications).
What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?
If an investor proceeds with a transaction without obtaining the required prior authorisation, the Minister for the Economy can issue, after having made investigations (see question 12), an injunction under which the investor must refrain from carrying out the transaction, modify the transaction, or cause the previous situation to be restored at its own expense within a maximum period of 12 months. In the event of non-compliance with this injunction, the transaction is considered null and void.
In addition, non-compliance with the prior authorisation requirement constitutes a criminal offence, which may be punished by imprisonment of up to five years or a fine of up to twice the amount of the irregular investment.
What is the substantive test for clearance and on whom is the onus for showing the transaction does or does not satisfy the test?
The substantive test for clearance is to verify that a contemplated transaction or investment may not harm national interests and that there is no risk under business ethical rules.
First, given that French law does not define the concept of ‘national interests’ (and that the list of sensitive sectors can be read extensively as discussed in question 7), the Minister for the Economy has a rather high degree of discretion.
Second, the Minister for the Economy must also assess whether there is a serious presumption or risk that the investor already committed or is likely to commit certain offences punishable under French criminal law (eg, money laundering, terrorism, active bribery, drug trafficking, etc).
To what extent will the authorities consult or cooperate with officials in other countries during the substantive assessment?
The Minister for the Economy may solicit, in the context of the authorisation procedure, international cooperation with officials and authorities in other countries to verify the accuracy of information provided by foreign investors, in particular information on the origin of the funds.
Other relevant parties
What other parties may become involved in the review process? What rights and standing do complainants have?
From a legal point of view, the parties to the authorisation procedure are limited to the investor and to the Minister for the Economy. However, many stakeholders may be consulted.
Prohibition and objections to transaction
What powers do the authorities have to prohibit or otherwise interfere with a transaction?
The Minister for the Economy has the power to issue injunctions to prohibit, modify or unwind a transaction completed without the required prior authorisation or in the event of non-compliance by the investor with the conditions laid down by the Minister in the authorisation (see question 15).
Is it possible to remedy or avoid the authorities’ objections to a transaction, for example, by giving undertakings or agreeing to other mitigation arrangements?
The Minister for the Economy may grant authorisation under various conditions and the investor may submit written undertakings in this regard to support his application, either spontaneously or upon request of the Minister during the review period (see questions 7 and 16).
Such conditions or undertakings are frequent in large or sensitive transactions. They are generally applicable for a long period of time. A sensitive issue is the application of penalties in case of breach later on.
Challenge and appeal
Can a negative decision be challenged or appealed?
Investors can challenge the decision of the Minister for the Economy (either the denial of authorisation or the conditions imposed in the authorisation) by filing recourse before the French administrative courts.
What safeguards are in place to protect confidential information from being disseminated and what are the consequences if confidentiality is breached?
Confidential information is primarily protected by the laws applicable to the sector concerned but may also be contractually agreed between the investor and the Minister for the Economy.
The protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure is subject to additional safeguards laid down in Law No. 2018-670 of 30 July 2018 transposing EU Directive 2016/943 of 8 June 2016.
Relevant recent case law
Discuss in detail up to three recent cases that reflect how the foregoing laws and policies were applied and the outcome, including, where possible, examples of rejections.
The examples below reflect the evolution of how the current regulations were applied since their major amendment in 2014, as well as the political considerations that may have impacted the outcome.
Acquisition by General Electric of the energy business of Alstom - 2014
The sale of Alstom’s energy business to General Electric was publicly announced in April 2014. At that time (ie, just before Decree No. 2014-479 issued by the (former) French Minister for the Economy Arnaud Montebourg on 14 May 2014), the applicable list of ‘sensitive’ sectors was essentially limited to sectors relating to national defence.
The scope of the transaction represented 70 per cent of the activity designated as a flagship of the French industry.
Several solutions were considered to avoid selling this business to a US company. To that end, the (former) Minister for the Economy strived toward the setting up of a consortium comprising Siemens so that the energy business of Alstom would remain under the control of a company based in the European Union.
Moreover, considering the lack of protectionism in the French regulations on foreign investment with respect to strategic business sectors that are not related to national defence, the (former) Minister decided to substantially amend such regulations. On 14 May 2014, he issued Decree No. 2014-479, which substantially extended the list of ‘sensitive’ sectors subject to special scrutiny and amended the prior authorisation procedure.
Finally, in November 2014, after having received several bids for its energy business, Alstom’s board of directors preferred General Electric’s offer.
The (former) minister then managed to obtain certain undertakings from General Electric, including the creation of several joint ventures and commitments to preserve employees.
Takeover of Alcatel Lucent by Nokia - 2015
Alcatel Lucent is a listed telecommunication company headquartered in France.
The negotiations between Alcatel Lucent and the Finnish group Nokia regarding the sale of all or part of Alcatel Lucent’s business date back to 2013 and the (former) Ministry for the Economy was already informed thereof as confirmed by a senior official from the Ministry in the press, although no public announcement was made at that time.
In September 2014, Nokia made a first offer for part of Alcatel Lucent’s business. Finally, Nokia decided to make a tender offer for 100 per cent of the share capital of Alcatel Lucent. Further negotiations followed, notably on the exchange ratio. In April 2015, the tender offer was publicly announced.
Given that the Ministry for the Economy was unoficially informed long before the transaction was negotiated and agreed between the parties, the clearance was granted in October 2015 without additional controversy or political tensions. The tender offer was successfully closed in December 2015.