The French Government temporarily reduces the threshold for review of non-EU/EEA investments in French listed companies in the context of the COVID-19 pandemic

On July 23, 2020, the French Government published a Decree [1] and a Ministerial Order [2] to temporarily reduce the threshold for review of nonEU/EEA investments in French listed companies in the context of the COVID-19 pandemic. As explained by the French Minister for the Economy, “[w]hile most foreign investment transactions are opportunities for French companies, the volatility of financial markets and the very sharp decline in the valuations of a large number of companies make them particularly vulnerable to potential unfriendly transactions, which calls for increased vigilance.” [3]

The Decree follows the March 25, 2020 European Commission Communication urging Member States to protect “critical health infrastructure, supply of critical inputs, and other critical sectors” (link to blog). Several EU countries have already adopted measures to strengthen FDI screening in light of the COVID-19 pandemic, including, Germany, Italy and Spain.

The Decree is the second step in the French Government’s move to protect national companies in the context of the Covid-19 crisis. On April 30, 2020, the French Minister for the Economy published a Ministerial order extending the scope of French foreign investment control to the R&D activities related to the biotechnology sector. [4]

The new rules will enter into force as from August 7, 2020, [5] and stay in force until December 31, 2020. They will apply to non-EU/EEA transactions notified between these dates.

1. Scope limited to non-EU/EEA investments in French listed companies active in “sensitive” sectors

The French FDI regime requires prior approval for foreign investments in French entities active in any of the “sensitive” sectors listed in Article R.151-3 of the French Monetary and Financial Code. It applies to (i) acquisitions of control over a French law entity by a foreign investor, (ii) acquisitions of all or part of a business activity of a French law entity by a foreign investor and (iii) investments by an ex-EU/EEA investor that directly or indirectly crosses 25% of voting rights in a French law entity by a non-EU/EEA investor (this threshold was reduced from 33% to 25% by decree of December 31, 2019).

The Decree temporarily further reduces the threshold for review for non-EU/EEA investments from 25% to 10% of the voting rights “when targeting French listed companies”. Even though the Decree’s wording is somewhat unclear, its preamble indicates that it is intended to apply only to French listed companies active in the “sensitive ” sectors listed in Article R.151-3 of the French Monetary and Financial Code.

2. Simplified derogatory authorization procedure introduced by the Decree

Since April 1, 2020, foreign investments are subject to a new two-phase procedure that resembles merger control. Transactions cleared without conditions are expected to be approved within 30 business days (first phase), while transactions that may raise issues will be subject to an in-depth review that may last up to 45 additional business days (second phase) (link to blog).

The Decree introduces an additional specific simplified procedure applicable to investments falling within its scope. Pursuant to Article 2 of the Decree and Article 1 of the Ministerial Order, a non-EU/EEA investor exceeding the 10% threshold and falling in the scope of the Decree shall file a simplified notification to the Ministry for the Economy (including information on (i) the amount of voting rights previously held by the investor and acquired in the context of the investments; (ii) securities owned by the investor giving it access to shares; (iii) existing rights of the investor to acquire additional shares in the future under an agreement or a financial instrument ; (iv) the objective of the investor with respect to the entity subject to the investment (e.g., acquisition of control); (vi) the financing of the investment and (vii) projected next steps as regards further investments and the target’s governance). The investment will then be deemed authorized 10 business days after the date of notification, unless the Minister objects within this time-period and provided the investment is made within six months of the notification. In the event the Minister objects, the investor will be required to file a formal authorization request subject to the standard two-phase procedure following which the Minister can either (i) authorize the investment without further conditions, (ii) authorize the investment subject to specific conditions imposed on the investor, or (iii) block the transaction.

Conclusion

From August 7, 2020 until December 31, 2020, any non-EU/EEA investment exceeding 10% of the voting rights in a French listed company active in a “sensitive” sector will require a prior simplified notification to the Minister for the Economy. The Minister may then object the investment, in which case a full notification will have to be made and the investment will be subject to comprehensive foreign investment control procedures.

Footnotes

[1Decree n°2020-982 dated July 22, 2020, relating to the temporary lowering of the foreign investment control threshold for French companies which shares are admitted for trading on a regulated market (the “Decree”), accessible here.

[2Ministerial Order dated July 22, 2020 relating to the temporary lowering of the foreign investment control threshold for French companies which shares are admitted for trading on a regulated market (the “Ministerial Order”), accessible here.

[4Ministerial Order of April 27, 2020 applicable from May 1, 2020 (NOR: ECOT2010256A).

[5The Decree states that the new rules are not applicable to investments carried out within 10 business days following the publication of the Decree.

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François-Charles Laprévote, Séverine Schrameck, Aurèle Delors, Laura Chovet-Ballester, The French Government temporarily reduces the threshold for review of non-EU/EEA investments in French listed companies in the context of the COVID-19 pandemic, 23 July 2020, e-Competitions Interim measures, Art. N° 96478

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