BY ROB COX
It should have been what the French call “une évidence” – a no-brainer. Nearly a year ago, Alimentation Couche-Tard, a Quebec convenience store chain, offered to drop $20 billion in the land of its founders’ forebears to buy French grocer Carrefour. The Quebecois promised to invest billions of euros in the business and not to fire anybody. Yet Gallic President Emmanuel Macron’s government dismissed the deal with a Jupiterian wave of the hand.
True, the Canadians were clumsy in their approach. They hired Macron’s former employer, top Parisian investment banking firm Rothschild. But Couche-Tard’s due diligence consisted more of walking the aisles of Carrefour and Monoprix supermarkets than briefing Finance Minister Bruno Le Maire. Surprised by the takeover approach, he rejected it outright on cable television.
The episode illustrates the extent to which politics and private enterprise are entangled in the world’s seventh- largest economy. And it explains why Parisian finance will start 2022 relatively placidly but likely end the year with a bang. Macron is fighting for a second term in office. While he is comfortably ahead in the polls as 2021 wraps up, his swift ascent to the presidency five years ago and the fickleness of French voters, who have not given a second term to any president since Jacques Chirac in 2002, mean re-election in April is not a given.
This will dampen bankers’ ardour for deals before the elections. That’s not just because they fear transactions, especially those involving international acquirers, might face extra scrutiny during this politically febrile period. It’s also because there’s a strong pro-Macron faction among the CAC 40 executive class that wants to avoid doing anything that might boot a former corporate financier from the Élysée Palace.
Macron has been generally good for business and dealmaking. As of late November, French companies had been involved in some 2,900 transactions with a combined value of more than $252 billion, according to Refinitiv data. At that pace, 2021 may turn out to be, if not greater than the record year of 2006, the most active since 2007, when $288 billion of transactions were inked.
Granted, Macron has stymied some big deals, including Renault’s merger with Fiat Chrysler Automobiles two years ago. But the current crop of contenders for his job may not be any more accommodating. Éric Zemmour, a former journalist with eurosceptic and hardline anti-migration views, would likely be even more hostile to business and foreign capital than Macron’s leading challenger on the right, Marine Le Pen.
The left is fragmented for now. Meanwhile, Michel Barnier, who led the European Commission’s negotiations with Great Britain over its withdrawal from the European Union, is vying with Valérie Pécresse, head of the Paris regional government, to represent the centre-right. Neither is perceived to be more open to market forces than Macron.
Against this backdrop, sensitive deals will be on hold, at least until after Macron wins the election, and perhaps for longer if his party fails to gain a robust position in the National Assembly. The biggest of these would be a long- expected restructuring of EDF, the giant electric utility in which the state holds an 85% stake. A deal would likely see the company’s small stock-market float acquired by the government, and its renewable energy assets separated from its nuclear power business.
Foreign purchases of businesses in industries deemed strategic – a definition France has stretched to include yogurt, supermarkets, cars and beyond – would remain off limits. In late November the finance ministry extended stricter measures on foreign ownership of companies it deems strategically important to the country for another year. Foreign buyers must receive permission to take stakes of more than 10% in listed companies in the health, electronic communications, technology, aerospace, data centres, media and food safety industries.
And private equity buyers, who are seen as temporary owners, will want to avoid assets that touch national interests. That would, for instance, seem to preclude any imminent sale of companies such as Idemia, a security business acquired by Advent International and Bpifrance from Safran in 2016. The company, worth more than $3 billion, specialises in biometric identification technology, and provides services to the government, including border control. Putting an asset like that into play during an election would be tricky.
Similarly, privatisations, such as of the government’s 51% stake in Aéroports de Paris, which Macron wanted to use to start an innovation fund, may have to wait until late 2022, if not beyond. While a referendum to block any sale of the airport operator failed to garner enough signatures in 2020, the company trades at half its pre-pandemic high, making a sale less attractive financially – and potentially easier for opponents to criticise.
Difficult, but not impossible, to pull off in an electoral campaign would be domestic mergers that raise anticompetitive issues. That said, in October Macron declined to renew Isabelle de Silva’s mandate as chief antitrust watchdog – a sign many bankers took to mean that he wants to more easily facilitate the creation of domestic and European champions.
Still, the problem is that in-market deals generally mean job cuts, which would hand Macron’s opponents ammunition. While not the primary cause for the termination of talks in October between Carrefour and privately owned Auchan, it hovered over the deliberations. A merger would have resulted in a domestic juggernaut with a 30% market share, reduced consumer choice and fewer jobs in the sector.
After the election, a Carrefour combo with Auchan – or even a Couche-Tard redux – may be possible. Even crunchier mergers, such as a long-studied purchase by BNP Paribas of crosstown rival Société Générale, could be on the table. In the meantime, pent-up demand for overseas assets by French heavyweights with clean balance sheets like LVMH, L’Oréal, Kering, Sanofi, TotalEnergies and Schneider Electric may be more palatable politically. Whether their shareholders can stomach the prices they will have to pay abroad is another matter entirely.
First published Nov. 30, 2021