Overview of the French M&A market
The French M&A market is, as around the world, one that is characterised by the impacts of the COVID-19 crisis. In 2020, following the implementation of a national lockdown in March, share prices of France’s largest listed companies forming the CAC 40 dropped sharply, and many M&A deals were put on stand-by. The French government reacted quickly by implementing unprecedented support measures such as state guaranteed loans, a partial unemployment scheme and a solidarity fund, which to date, represent EUR470 billion of government spending.
In the second half of 2020, French M&A and share prices made a strong recovery and while certain key deals were abandoned (in practice, although many sellers attempted to make use of MAC and force majeure clauses, few succeeded), most M&A deals were resumed or launched, albeit in a context where deal terms were often renegotiated to the advantage of the buyer. As a whole, the value of M&A transactions for 2020 ultimately increased by 8% compared to 2019, in spite of French GDP contracting by 8%.
The COVID-19 crisis will have long-lasting effects. For M&A players who entered the crisis with a strong balance sheet, it created opportunities as share prices dropped and companies looked to reinforce their positions in new critical markets such as technology. For less robust M&A players, structural or corporate governance problems pre-dating the crisis made them even more vulnerable to unsolicited approaches and shareholder activism, giving rise to restructurings and distressed M&A. The COVID-19 crisis also accelerated certain pre-existing tendencies, such as the increasing role of the French government in screening strategic transactions, the digital and ecologic transitions of companies and the resilience of the French luxury sector. The acquisition by LVMH of Tiffany and Veolia’s acquisition of ENGIE’s stake in Suez are emblematic of these trends.
France was the first destination for foreign investment in Europe in 2019. With a strong recovery stimulus plan of EUR100 billion announced by the French government at the end of 2020, the COVID-19 crisis is seen as an opportunity to increase France’s competitiveness on the international arena, in particular in terms of foreign investment. As such, the recovery plan will notably be directed at ensuring France’s ecological and digital transition and continuing to reduce taxes on companies at the same time as corporate income tax is progressively reduced to 25% by 2022. French M&A, and the place of France in international M&A transactions, in particular with the French presidential elections looming in 2022, should benefit from these measures in 2021.
Key Legislation and Trends
Increased role of the French government in screening foreign investment in strategic sectors
Following a worldwide tendency, the French government’s power to screen foreign investment in strategic sectors has significantly increased in recent times. Early in 2020, the list of strategic sectors subject to the French foreign investment prior authorisation regime was extended and the level of stake triggering the regime in respect of non-EU/EEA investors was dropped from 33% to 25% of voting rights.
Fearing opportunistic acquisitions of strategic companies made vulnerable by the COVID-19 crisis, laws were subsequently passed in 2020 to add biotechnology to the list of strategic sectors (Euronext Paris being the largest European stock market for biotech companies) and a temporary simplified foreign investment authorisation regime was introduced for acquisitions by non-EU/EEA investors of at least 10% of the voting rights of French listed companies, which has been extended until 31 December 2021.
The French government has also been more daring in its implementation of laws. In December 2020, the French government officially blocked a foreign investment in France for the very first time, vetoing the proposed acquisition by the American Teledyne of Photonis, which supplies the French army. Then, in January 2021, the French government announced it would block the proposed acquisition of Carrefour, France’s largest private employer, by the Canadian Couche-Tard, on the grounds of food security, even before an official filing with the French government had been made. This transaction, which was presented late in the process to the French government, reflects the critical importance of anticipating the impact of foreign investment authorisations in France on cross-border transactions.
Impact of the COVID-19 crisis on corporate governance
The COVID-19 crisis also had a significant impact on corporate governance rules and practices in France.
In particular, laws passed early in the crisis to provide flexibility for the convening, holding and voting at shareholder and board meetings, including allowing shareholder meetings to be held without the presence of shareholders, have been extended to 31 July 2021.
Dividends and executive remuneration also took a hit in 2020: following the French government’s conditioning certain state aid measures on large companies not paying a dividend and the French Association for Private Entreprises (AFEP) calling on its members benefiting from state aid measures to reduce dividends and executive remuneration, the large majority of companies forming the CAC 40 reduced or cancelled their dividends, which were reduced by about 40% compared to 2019, and/or executive pay in 2020.
Rise of shareholder activism
The growth of shareholder activism in France, in particular from foreign shareholders, is another key M&A trend which is being bolstered by the consequences of the COVID-19 crisis. The longstanding proxy fight between activist Amber Capital and Lagardère SCA took a new dimension in 2020 with Amber Capital proposing shareholder resolutions (rejected by shareholders) at Lagardère SCA’s annual shareholders’ general meeting to reshuffle its supervisory board with the aim of ultimately transforming its legal structure.
Other major French listed companies have however not emerged unscathed. Real estate giant Unibail-Rodamco-Westfield (URW), heavily impacted by the COVID-19 crisis following closure of shopping centres, saw its strategy vanquished at its 2020 shareholders’ general meeting by an alternative proposed by minority shareholders headed by the ex-CEO of URW, who was elected to URW’s supervisory board. Danone, subject to attack since end 2020 by activist shareholders Bluebell and Artisan Partners calling for the dismissal of Danone’s CEO and the separation of the functions of CEO and chairman of the board, ultimately gave in partially by announcing in 2021 that it would separate the functions of CEO and chairman of the board, with the current CEO remaining only chairman of the board and a new CEO to be appointed.
Environmental considerations, increasingly important in the wake of the COVID-19 crisis, are also a growing pre-occupation of activist shareholders in France. In 2020, for the first time in France, a group of European institutional investors added a shareholder’s resolution to the agenda of the annual shareholders’ general meeting of Total (rejected by Total’s shareholders), seeking to force Total to explain how it will meet the Paris Agreement’s objectives on climate change. Following TCI’s request (rejected by VINCI) that VINCI add a similar resolution to the agenda of its 2020 annual shareholders’ general meeting, VINCI has become the first large listed French company to propose a “Say on Climate” vote in its 2021 annual shareholders’ general meeting. It can be expected that this trend will continue in 2021, with shareholders seeking that climate change policies and management of the COVID-19 crisis be included as criteria for executive pay.