Extension of the temporary lowering of the control threshold for foreign investment in French companies

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The decree extends for an additional year the measure to lower the threshold for obtaining voting rights from 25% to 10% that is likely to cause control in French companies carrying out activities sensitive to public security, public order and interests of the national defense and whose shares are admitted to trading on a regulated market, under the regulations governing the control of foreign investment.

D. no. 2021-1758, Dec. 22 2021: JO n° 0299, 24 Dec. 2021

According to Bruno Le Maire, the legal framework for the control of foreign investment in France (IEF) PACT has made it possible to respond flexibly and quickly to changes in the economic context and to new security challenges related to the health crisis.

The latter, and the risks of predatory foreign operations it poses, have prompted France to further strengthen its foreign investment control system from April 2020, as recommended by the European Commission.

In a communication of 26 March 2020, it called on Member States to “make full use of their FDI screening mechanisms” to “prevent loss of critical assets and technologies”.

In addition, since 11 October 2020, a European mechanism to monitor investments from third countries has been in place. Based on the exchange of information between Member States, it aims to better protect the Union’s strategic interests. Foreign direct investment, or foreign direct investment (FDI), corresponds to the acquisition of financial assets that represent at least 10% of the capital of a foreign company.

Unlike a simple financial investment (such as the purchase of some shares in a company), FDI is conducted “with the aim of acquiring a lasting interest in a [entreprise étrangère] and, in the context of a long-term relationship, to exert a significant influence on its management,” INSEE specifies.

Be that as it may, the US group Teledyne recently tried to buy night vision specialist Photonis, a buyout that was ultimately prevented by the negative advice from the Ministry of Economic Affairs.

As a reminder, after the outbreak of the health crisis, two measures were taken to strengthen the IEF control system.

For example, since the end of April 2020, biotechnologies are now part of the critical technologies subject to IEF control, even though the activities essential for the protection of public health were already controlled before the health crisis.

Outside this specific area, according to the government, “however, the current health and economic context does not allow to exclude the risks to national security linked to opportunistic minority interests in listed French companies”.

That is why, since July 2020, the control threshold for foreign investments in listed French companies has been lowered from 25% to 10%.

In this regard, Decree No. 2021-1758 of 22 December 2021 extends this measure for an additional year in order to lower the threshold for acquiring voting rights that could cause control in French companies carrying out activities sensitive to public security, public order and the interests of the national defense and whose shares are admitted to trading on a regulated market1

According to the government, this control mechanism also contributes to the preservation of European interests. France is also calling on all member states of the European Union to put in place a similar mechanism to better protect it when foreign investment poses risks to security and public order. It is also recalled that this measure does not concern European investors.

I – Threshold lowering methods that activate the check

As a reminder, the measure to lower the threshold giving rise to the check is carried out under an accelerated procedure: the investor who exceeds the 10% threshold must inform the General Management of the Treasury.

The Minister of Economic Affairs then has 10 days to decide whether the operation should be subject to a more in-depth investigation, based on a full license application, which could lead to a refusal to grant a non-European foreign investor more than 10% of the voting rights of a sensitive French company.

II – Unlisted Companies

Anyway, in a written question (#16791), Senator Mme Hélène Conway-Mouret questioned the economy minister about the need to include unlisted companies in this system, to protect them from massive investments that would give foreign players control over sectors essential to our sovereignty.

In his response, the minister indicated that the limitation of the scope of this measure is based on “the fact that the risk that the acquisition of a minority shareholding may pose to the national interests of France mainly concerns listed companies, whose capital is naturally dispersed. and difficult to control”.

As a result, a shareholder’s share, although a minority within this type of company, could give him decisive influence over the company and its sensitive activities.

However, according to the minister, this “distribution of capital is much lower in unlisted companies, thus reducing the influence that a minority shareholder could exert over the decisions that can be made regarding the sensitive activities of the company”.

In addition, the Minister recalls that the acquisition of shareholdings in unlisted companies remains subject to the ordinary authorization procedure in the event of exceeding the 25% threshold of the voting rights or takeover, referred to in Article R. 151-2 of the Monetary and Financial Code.

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