French President Emmanuel Macron’s En Marche! movement swept to power on a progressive agenda but his protectionist stance on M&A looks like a step backwards.
Macron is trying to build support for an EU-wide consensus that restricts foreign takeovers of European targets in sectors defined as strategic, such as aerospace, defence and technology. Macron’s move to protect industry looks like an extension of a law that has been in place for years and is a response primarily to the European land-grab by Chinese companies, which announced record levels of foreign takeover activity last year, led by ChemChina’s mega-purchase of Swiss pesticides group Syngenta.
Macron is backing calls from Paris, Berlin and Rome for a European mechanism which would be similar to the US, where the Committee on Foreign Investment considers the national interest and security implications of overseas investment in US companies.
The wave of cross-border activity has abated this year as Chinese authorities have clamped down on the flight of capital but the government remains committed to its aim of transforming China into a service-based economy catering for its burgeoning middle class from one centred on manufacturing. That means more takeovers, and not necessarily big-ticket headline-grabbing ones. Chinese companies are particularly taken with Germany’s Mittelstand, the vast swathe of family-run enterprises that form the bedrock of the country’s economy. While frets about the flight of capital, Europe frets about the flight of technology and expertise.
Macron proved in the French elections that he could capture the zeitgeist, and his views on protectionism seem to tap an equally popular vein, even among the political class.
The UK Prime Minister Theresa May, who is currently trying to form a government after this month’s slender victory, wants to tighten up laws governing foreign takeovers, while the Dutch government is attempting something similar. The question is whether this protectionist drive is simply a natural step to create a move even regulatory playing field, or whether it is regressive.
The Dutch plans, forged in the wake of PPG Industries hostile but unsuccessful attempt to acquire Dutch chemicals group Akzo Nobel, have already drawn vocal opposition from 10 of the world’s largest fund managers, including which include Fidelity International, Old Mutual Global Investors and Allianz Global Investors.
New protectionist laws would have unintended consequences for M&A. One advantage is that an unwanted approach from a foreign bidder might serve as a catalyst to create more pan-European champions in strategically important sectors. Against that, there is always the fear that rules could be interpreted to rebuff any approach. Back in 2005, the French government used its laws to torpedo a bid for French Yoghurt maker Danone from Pepsico of the US, and in doing so made yoghurt a matter of national security.