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France, U.K. close to putting the brakes on takeovers

It's the end of laissez-faire, says Arnaud de Montebourg, the French minister for the economy and productive renewal. In a decree published today, he extended the state's power to prevent takeovers of defence establishments to include businesses in transport, energy, telecommunications, water and health. By grabbing a lever over the commanding heights of the French economy, Mr. de Montebourg also delivered a warning to General Electric Co. and Siemens AG, the German and American industrial giants currently competing for control of Alstom SA, the French manufacturer of turbines and TGV trains.

In an interview with Le Monde, the French newspaper, the minister said his decision to protect France's economic interest was motivated by "economic patriotism." Other nations, he said, including Germany and the U.S. have used such powers as America's Committee on Foreign Investment in the United States to investigate and block investments. Alstom performed a vital role in France's energy independence, Mr. de Montebourg asserted, and said the decree would "restore the balance of power between the interests of the state and of multinationals, which are not always aligned."

The offices of the economic and finance ministry in Paris are housed in the Batiment Colbert, named after Jean-Baptiste Colbert, the man who looked after the treasury for King Louis XIV and whose name became associated with a form of interventionist economic nationalism, or dirigisme. It was a despotic system of licences and controls which conferred economic power by patronage and prevented competition, while at the agressively pursuing trade advantage overseas with privileges granted to France's imperial overseas traders. Mr. de Montebourg is an unashamed disciple of Mr. Colbert's nationalist sympathies and he recently launched a programme to promote the return of manufacturing to France, naming it "Colbert 2.0."

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It looks like pre-emptive action by France to arm itself in the face of a new wave of American companies launching foreign takeovers. It is almost a cyclical phenomenon: armed with a war chest of bubbly U.S. share ratings and offshore bank deposits swollen with tax-free cash, American corporations are doing a periodic trawl of the European landscape in search of fat but lame ducks. In France, GE spotted Alstom and in Britain, Pfizer Inc. has drawn a bead on AstraZeneca PLC. But this time, the political uproar is not confined to France, and the British government is under huge pressure to adopt a form of Colbertisme, intervening in the merger process by seeking job guarantees.

In principle, the idea of thwarting the takeover of a public company is hugely antithetical to the Tories, notably George Osborne, the chancellor whose political fortunes are riding high, thanks to recent economic statistics showing strong growth and rising employment. The recovery is still shaky, however. Mark Carney, the Bank of England governor, is keeping interest rates low despite the boom in house prices, because he believes that investment is still weak. The takeover of a single company – even one as big as AstraZeneca – won't change the economy, but it is all about signals. Hobble Pfizer and you may deter other foreign investors; give a predatory U.S. corporation a free ride and you might not only kill jobs but lose the general election next year.

For Britain, the ideal solution would be to bind Pfizer to its promises of investment and jobs without the heavy hand of government interference, a sort of Colbert Lite. There is talk of using the Takeover Panel, an independent body that has been highly successful in regulating corporate behaviour in takeovers and keeping disputes out of the courts. However, it has no powers other than public censure, and it may be that some method of enforcing public promises and undertakings about jobs and investment made in the course of mega-bids may be the better way forward.

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About the Author

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K. With a career spanning investment banking, journalism and consulting for global companies, he was for many years a financial writer and columnist for The Times of London. More


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