When the French government initially became involved with the negotiations regarding GE's potential acquisition of Alstom's energy business, the French regulations on foreign investments did not mention energy in the 11 sectors that required a prior authorisation of the State for a foreigner to invest in.
Though Alstom was carrying out certain activities that might have fallen within the scope of the original regulations, such as the maintenance of the turbines of the French aircraft carrier Charles de Gaulle, the parties could have dealt with this from the outset or isolated the sale of such activities. That way, they would have avoided applying for an authorisation for energy activities which did not fall within the scope of the original regulations.
This case prompted the French government to issue a decree on 14 May 2014 (published and in force since 15 May 2014) extending this list of sectors for which a prior authorisation is required to energy, water, transportation, electronic communication and public health - these sectors are detailed and regrouped in a new paragraph 12 added to article R153-2 of the French Monetary and Financial Code. The French government argues that other developed countries already had prior authorisation rules for investments in sectors like nuclear energy.
The new decree further specifies that the government can now require the carve-out of certain divisions from the scope of the sale as a condition to granting the authorisation, whereas until now this was possible only for divisions of secondary importance.
Which sectors were already subject to authorisation?
Before 15 May 2014, the 11 sectors concerned by the French prior authorisation regime were (as further detailed in article R153-2 of the French Monetary and Financial Code):
money games except casinos;
private security regulated activities;
research/development/production of countermeasures to the terrorist use of pathogens/toxic agents;
information system security evaluation services;
information system security services to public or private operators of defence installations;
dual civil and military technology goods and services;
activities of businesses possessing defence secret information;
research, production or distribution of weapons, ammunition and explosive powders and substances;
activities in this sector of contractors or sub-contractors of the ministry of defence.
Reminder of the general regime
The French regime of foreign investments otherwise remains substantially unchanged. The general rule remains the same: foreigners are free to invest in France, in line with the freedoms of movement of capital and establishment entrenched in the Treaty on the Functioning of the EU. However, they may have to file a declaration to the Ministry of Economy and/or the Banque de France (depending on the sector, the form of the investment and its amount) and they remain subject to rules applying to all investors including French investors (merger clearances, requesting a license for carrying out a regulated activity…).
The regime of investments for which a prior authorisation is required as an exception to this general rule remains substantially unchanged: investments made in one of the above-mentioned sectors may require the prior authorisation of the Ministry of Economy, which can attach conditions to such an authorisation and which has two months to examine any application for a prior authorisation.
Reminder of the variable perimeter of the investments subject to prior authorisation
The perimeter of sectors and forms of acquisitions for which a prior authorisation is required still varies according to the country of domicile of the investor.
Investors from outside the EU and the EEA will be concerned not only in case of an asset deal or a share deal translating into a change of control but also when they acquire a minority interest in a French business (where more than 33.33% of the capital or voting rights is concerned).
Investors from within the EU and the EEA will however be exempt if they take a minority interest in a French company; they will also be exempt if they acquire control over a French company (or a business in some cases) in sectors 1 to 7 above.
As for French companies controlled by foreigners, they need to request a prior authorisation only if they acquire a business operating in sectors 8 to 11 above or in the additional sectors defined by the new decree, without prejudice to the obligation of the foreigners controlling that French company to possibly have to request a prior authorisation because the acquisition made by their French subsidiary results in them indirectly acquiring control in a French business operating in one of the relevant sectors.
Violation of these rules can (still) result in the nullity of the acquisition and be sentenced with up to five years of imprisonment, confiscation of the investment, a fine of up to twice (and ten times for corporate offenders) the amount of the offence, provided that the sanction is proportional.
It can be debated whether the description of each new sector is precise enough and not too vague to withstand court challenge. The French Conseil d'Etat, in a decision of 8th December 2000, following the decision of the Court of Justice of the European Union of 14th March 2000 involving also the Church of Scientology, had already ruled that the reference (in the decree that regulated foreign investments at the time) to investments that may compromise public order or public security was too vague and therefore inoperative. This prompted the government to identify the 11 above-mentioned specific sectors. It is worth noting that the sectors set out in the new decree purport to have a much wider scope.
France still welcomes foreign investments
Unrelated to this new decree, foreign investors will otherwise be happy to learn that, since January 2014, nationals of countries outside the EU, the EEA and Switzerland no longer need to make a prior declaration to the préfet for being appointed as a legal representative of French company (except for a very few remaining exceptions such as companies operating a casino, manufacturing weapons or owning a ship registered in France). France clearly still welcomes foreign investments.