This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 PARIS 006570 
 
SIPDIS 
 
SENSITIVE 
 
STATE FOR EB/OIA - WES SCHOLZ AND JAMES ROSELL 
TREASURY FOR OFFICE OF INTERNATIONAL INVESTMENT - GAY SILLS 
STATE PASS USTR 
 
E.O. 12958:  N/A 
TAGS: EINV ETRD ECON FR EUN
SUBJECT: FRANCE TO IMPLEMENT EU TAKEOVER DIRECTIVE; DECREE 
ON "STRATEGIC SECTORS" AT A STANDSTILL 
 
Ref: Paris 5441 
 
NOT FOR INTERNET DISTRIBUTION 
 
SUMMARY 
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¶1.  (SBU) The Council of Ministers has adopted a draft bill 
implementing the EU Takeover Directive, which will allow 
targeted French companies to adopt anti-takeover defenses 
permitted in a potential bidder's own country.  This bill 
comes on top of a draft decree to create a list of ten 
"sensitive sectors" to be protected from foreign takeover 
attempts, which has drawn fire from the EU Commission and is 
currently at a standstill.  These two separate initiatives 
have been in the making for some time and were presented 
together as part of Prime Minister Villepin's "economic 
patriotism" agenda in July 2005, in response to the critical 
domestic reaction to rumors that PepsiCo was attempting to 
acquire yoghurt and drink-maker Danone.  End Summary. 
 
Upcoming implementation of the EU Takeover Directive 
--------------------------------------------- ------- 
¶2.  (SBU) Adopted on April 21, 2004 after 15 years of failed 
attempts, the Takeover Directive was one of the more 
controversial pieces of legislation in this sector 
introduced by the EU Commission.  Then-Internal Market 
Commissioner Frits Bolkenstein devised the original 
proposal.  Bolkestein was also responsible for the much- 
maligned (at least in France) Services Directive, which 
according to many analysts played a crucial part in the 
French vote against the EU Constitution in May 2005.  The 
Commission's draft Directive was designed to provide common 
principles for cross-border takeover bids, boost shareholder 
power, and limit the rights of EU countries to protect their 
companies from takeovers.  However, the compromise text that 
France is expected to implement before the end of the year, 
following parliamentary approval, is a pale shadow of the 
Commission's original text in that it allows for substantial 
opt-outs. 
 
¶3.  (SBU) The most general opt-out provision, which France 
intends to implement, is the reciprocity clause found in 
Article 12, which would allow French target companies to 
take defensive measures without shareholder approval (as 
required in Art. 9) if the takeover bid comes from a country 
that allows such defenses.  The French Financial Markets 
regulator AMF will have the difficult task of deciding 
whether reciprocity exits or not. 
 
¶4.  (SBU)  The only hope for modification of the  directive, 
which should be implemented by member-states by May 2006, 
lies with the Commission which is required to review it 
every five years.  If French Parliament approves the GOF 
draft bill before the end of the year, France will succeed 
in enforcing an EU directive prior to its implementation 
date, an uncommon occurrence. 
 
The GOF decree on "sensitive sectors" 
------------------------------------- 
¶5.  (SBU) The French Government draft decree designed to 
shield from foreign bids domestic industries in ten sectors 
it considers strategic, (i.e. defense, biotechnology, space 
technology, telecommunications, casinos, encryption IT 
security and antidote production) has run into trouble from 
the EU Commission determined to avoid the possibility of 
"disguised protectionism."  EU Internal Market Commissioner 
Charlie Mc Creevy told the press on September 19 that he had 
made it clear to the French authorities that takeover 
defenses could only be for "very specific and limited 
stances."  He further added that France had kept the 
Commission informed of its plans over the past year. 
 
¶6.  (SBU) The attitude of the EU Commission has allegedly 
put the French State Council, which approves government 
decrees (as they are not submitted to the parliament for 
approval), in a difficult position.  The Council is holding 
the draft bill in the hope that the government will bow to 
EU pressure and shorten its list of most vital industries. 
 
Comment 
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¶7.  (SBU) While both French initiatives were developed 
separately and have been in the making for some time, they 
have become prime elements in de Villepin's "economic 
patriotism" agenda.  Capitalizing on French insecurities and 
fears of job losses and outsourcing, he is hoping to head 
off French labor unrest or at least prevent it from 
snowballing.  His government's move to introduce flexibility 
in the French labor market could spark popular discontent on 
October 4, when unions are organizing what they hope will be 
a general strike for greater purchasing power.  End Comment. 
Stapleton