VZCZCXRO7541
RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHFR #1823/01 0810759
ZNR UUUUU ZZH
R 220759Z MAR 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 5442
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES
RUEHFT/AMCONSUL FRANKFURT 5488

UNCLAS SECTION 01 OF 02 PARIS 001823 
 
SIPDIS 
 
SENSITIVE 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON ELAB PGOV FR
SUBJECT: FRANCE AND FOREIGN INVESTMENT:  JOB PROTECTIONISM 
TRUMPS OPEN CAPITAL MARKETS 
 
SENSITIVE BUT UNCLASSIFIED, NOT FOR INTERNET 
 
Refs:  (A) 05 PARIS 5935 
       (B) PARIS 357 
 
¶1. (SBU) SUMMARY.  Press reports claim that France has 
identified at least 20 firms, including ten blue chips, that 
merit GOF protection from foreign takeovers.  Foreign 
takeovers have developed a strong political and social 
dimension, given the government goal of reducing 
unemployment before 2007 presidential elections. 
Authorities pledge that France remains open to foreign 
investors, but employment concerns for the moment are 
trumping any commitment to open capital markets.  END 
SUMMARY 
 
Government Reportedly Protects 20 Firms from Takeovers 
--------------------------------------------- --------- 
¶2.  (U) According to the French economic newspaper La 
Tribune, in November 2005 the French intelligence services 
identified at least 20 French companies that are potential 
targets of foreign takeover bids and that merit government 
protection from such takeover.  The list includes steelmaker 
Arcelor, currently the object of a hostile bid from Mittal 
Steel; the Franco-Belgian water and power group Suez, which 
has been targeted by Italy's Enel; and other "national 
champion" companies, notably bank Societe Generale, 
retailers Carrefour and Casino, construction-materials firm 
Saint-Gobain, consumer-electronics maker Thomson, media 
group Vivendi Universal, and yogurt maker Danone, which was 
at the center of the debate last summer about "economic 
patriotism" (ref A).  According to La Tribune, 10 of the 
companies are publicly traded and are part of the CAC 40. 
Another 10 companies are not listed in the CAC 40, but 
should be protected.  Unlike the criteria developed for 
protecting strategic sectors (ref B), the GOF based its 
analyses on capitalization of companies, economic 
potentials, shareholding, growth in involved sectors, and 
human resources (e.g., how many French jobs are at stake). 
 
¶3.  (U) La Tribune also highlighted that French intelligence 
services have been used to monitor potential bids. 
Reportedly, intelligence services alerted Arcelor on 
November 17 of Mittal Steel's bidding intentions, two months 
before the bid became public. 
 
¶4.  (SBU) Not surprisingly, the Embassy have been unable to 
get official confirmation of the list's contents or its 
existence.  Working-level contacts at the French Finance 
Ministry, which supposedly drafted the list for the Prime 
Minister, admitted seeing the press reports but denied any 
knowledge of the list.  However, French parliamentarian 
Bernard Carayon (the main proponent of economic patriotism) 
has declared that the list was developed over a year ago, 
mainly to determining which companies are undervalued and 
therefore likely takeover targets. 
 
Government Encourages French Ownership of French Companies 
--------------------------------------------- ------------- 
¶5.  (U) In March, Finance Minister Dominique De Villepin 
stated "we need to consolidate the capital of companies and 
protect them against hostile operations."  In addition to 
amending the decree on the protection of 11 sectors deemed 
sensitive (ref B), the government amended the transposition 
bill of the EU anti-takeover directive currently being 
examined by the Parliament.  The amendment would allow 
companies to resort to a U.S. style  "poison pill" takeover 
defense, including granting existing shareholders and 
employees the right to increase their leverage by buying 
more shares through stock purchase warrants ("bons de 
souscription d'actions - BSA") at a discount in case of an 
unwanted takeover.  The defense makes a takeover more 
difficult to achieve.  The bill is still pending in the 
Parliament. 
 
¶6.  (U) De Villepin also asked the state-owned financial 
institution Caisse de Depots et Consignations (CDC), 
France's biggest institutional investor, to work as a 
domestic buffer against foreign takeovers by increasing its 
stakes in French companies.  CDC already has significantly 
 
PARIS 00001823  002 OF 002 
 
 
increased its stake in the Euronext stock exchange, a 
holding company formed in 2000 by the merger of the 
exchanges of Amsterdam, Brussels and Paris.  The plan is to 
counterbalance "anglo-saxon" shareholders, who together hold 
a majority stake in Euronext, by forming a shareholders pact 
with Euronext's historical actors to hold a 10% stake in 
Euronext.  Three U.S. funds, TCI, Articus and Harris, own 
more than 25% of Euronext. 
 
Investment Authority Reiterates France is Not Protectionist 
--------------------------------------------- -------------- 
¶7.  (U) Clara Gaymard, the head of the French Agency for 
International Investment ("Agence Francaise pour les 
Investissements Internationaux" - AFII) dismissed 
suggestions that the government is engaging in potentially 
"dangerous economic nationalism".  She said "when I hear 
people say we are protectionist, I say no." Instead she 
suggested the French lack enough pride in their economy.  In 
a comment about the planned merger of Suez and Gaz de 
France, she stressed that a GDF-Suez deal had been on the 
table for two years, but the government's 80% stake in GDF 
prevented the deal from moving forward.  She added that the 
government's willingness to decrease its stake to about 30% 
in GDF sent a clear signal that France was eager to attract 
investors to its energy sector, and claimed that foreign 
investors she has spoken to deemed the merger as "a very 
good industrial project."  She also praised government steps 
to loosen French labor laws, saying "even in France we are 
able to change rules," indicating that the controversial new 
legislation permitting special youth employment contracts 
("Contrat premier emploi" - CPE), which extends to two years 
the probationary period during which employers can more 
easily terminate employees, is "the beginning of a process." 
 
French Individual Investors Angry about Government 
--------------------------------------------- ------ 
¶8.  (U) According to a March 7 survey of 1,346 individual 
French investors, 9 out of 10 respondents opposed Mittal's 
unsolicited bid for Arcelor.  Nevertheless, the survey 
revealed that 60% disapproved of government action in 
hostile takeover bids, and 57% said they disagreed with anti- 
takeover rules.  Conversely, respondents to the survey also 
criticized the government for not supporting individual 
shareholders' interests by intervening in business matters. 
Colette Neuville, head of the individual shareholders 
investors association ("Association des Actionnaires 
Minoritaires", ADAM), stressed that "small shareholders were 
very angry at government attempts to block Enel's bid for 
Suez, since shares in Suez could have been subject to a best- 
price offer.  Shareholders felt they were forced to accept a 
discount." 
 
Liberalization of EU Markets Could Reinforce French 
Protectionism 
--------------------------------------------- ------ 
¶9.  (U) Commentators pointed out that France is not the only 
EU member to have a "neo-protectionist strategy".  La 
Tribune predicted that the list of the 20 protected 
companies might expand with future changes in EU 
legislation, notably with the gradual elimination of the EU 
agricultural supports by 2013, which could stimulate the 
foreign appetite for the processed food industry. 
 
Comment 
------- 
¶10.  (SBU) The government appears to be trapped between its 
efforts to encourage capital inflows, since foreign 
companies play a significant economic role, and its desire 
to keep corporate decision centers in France.  Even more 
crucial in the short-term is the jobs outlook, with an eye 
to the June 2007 presidential elections.  Foreign capital 
and foreign takeovers are associated with restructuring and 
downsizing, and, in the pre-election environment, the GOF 
will be loath to appear to support any foreign actors who 
threaten French jobs. 
STAPELTON