Foreign investments: increased control in France and Europe

One year after the overhaul of the French foreign investments control regime and a few months after the launch of a European cooperation mechanism in this area, it remains fundamental for companies to familiarise themselves with rules that have a major influence on the conduct of their operations.

The veto opposed at the beginning of January by the Minister of Economy Bruno Le Maire to the project of buying Carrefour by the Canadian retailer Couche-Tard illustrates the topicality of a control of foreign investments often still too little known by companies. This mechanism, which was first introduced in 1966, had already made headlines in 2020 in the context of the interest shown by the American Teledyne in the French company Photonis, specialised in night vision systems. Bruno Le Maire had at first verbally opposed any agreement, before discussions continued throughout the summer to finally stop with the formal refusal of the French State at the end of the year.

A recently overhauled French scheme

The latest statements by the Minister of the Economy coincide with the gradual strengthening of the control of foreign investments in France, initiated by the PACTE law and then supplemented by a decree dated December 31, 2019. As a result of these two texts, the participation threshold triggering "control" within the meaning of this regime is lowered from 33 to 25%, the powers of the Minister of the Economy in the event of a breach of the notification obligation or the commitments imposed are extended, as is the list of sectors falling within the scope of control: the written press and online press services for political and general information, energy storage, quantum technologies and food safety are now expressly targeted. It is for this reason that, as part of the rapprochement between Carrefour and Couche-Tard, Bruno Le Maire vetoed the proposal for reasons of "food sovereignty".

In the context of the sanitary crisis, the foreign investments regime has been further extended by two decrees in April and July 2020: biotechnology has been definitively added to the list of critical activities while the threshold triggering control has been lowered to 10% for listed companies. The latter amendment, initially intended to apply until 31 December 2020, was finally extended until 31 December 2021.

A little less than a year after the entry into force of the PACTE law and the aforementioned decree, practitioners who deal with the Minister of Economy (actually with the Direction Générale du Trésor) in connection with the submission of applications for prior authorisation are beginning to have enough experience to assess the implementation of the new regime. First of all, a number of positive points emerge, particularly in relation to the clarity and speed of the procedure. Experience shows that DG Trésor has a good understanding of the challenges posed by the operations and the constraints faced by investors, while at the same time being diligent in its examination, including when the analysis of the investment involves, depending on the sector concerned, consultation with other ministries or public bodies.

Nevertheless, as with any mechanism still in the process of being fine-tuned, the current French system calls for several remarks. In particular, practitioners are awaiting the publication of guidelines, announced by DG Trésor, which should provide greater clarity as to the scope of critical activities concerned by the control. Moreover, while an annual report on the application of the regime is made available to the public, the anonymous and aggregated nature of the information provided provides little useful information, in contrast to the practice of competition authorities which publish their reasoned decisions. Greater guarantees concerning the confidentiality of the review process would also be desirable where, today, third parties to the transaction are consulted informally. Finally, the recent interventions of the Minister of Economy show that a certain unpredictability still exists due to the eminently political nature of this control.

The entry into force of the European cooperation mechanism

The topicality of foreign investments control is all the more relevant as the cooperation mechanism between Member States established by Regulation n° 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union is fully operational since 11 October 2020.

Unlike in merger control, where the European Commission has jurisdiction to review mergers where parties exceed given turnover thresholds, the Regulation does not create a new layer of foreign investments control in Europe.

The new mechanism only promotes cooperation between authorities by requiring a Member State to inform the others and the Commission of any foreign direct investment under examination in its country. Each Member State may then make comments if it considers that the investment is likely to undermine its security or public order. If the Commission considers that such harm is likely in more than one Member State or if at least one third of the Member States comment, it may issue a non-binding opinion. The State of origin must then take account of all the comments received during its examination. The final decision on whether or not to authorise the investment remains, however, within its sole competence.

The entry into force of this European cooperation mechanism echoes the gradual development of foreign investments control in Europe in recent years: the regimes of countries such as Germany, Italy or Spain are now fully operational and may moreover differ widely in terms of the sectors concerned or the thresholds triggering control. Other regimes, such as in the United Kingdom or Poland, are still very recent. The trend towards tighter supervision of foreign investments has also been accelerated by the sanitary crisis, many States fearing that "critical" national companies will become more vulnerable to foreign acquisitions.

A major issue for investors

The control of foreign investment has become an issue of major importance that investors must be concerned about when carrying out operations in the sectors concerned.

The risk associated with a foreign investments control review must now, in the same way as for merger control, be taken into account in the transaction timetable and be included in the conditions precedent. A multi-jurisdictional analysis must be carried out in Europe and contacts with the authorities established as soon as possible in order to anticipate possible commitments.

Our team has many years of experience in assisting investors in all these areas, and the strength of our network of offices enables us to operate in all key jurisdictions.

Our practice covers advising operators in the assessment of the proposed investment in order to determine the need for a possible notification, as well as the preparation of the application for prior authorisation before the relevant authority or authorities