France

Despite being established for a number of years, the screening mechanism for FDI in France remains – by nature – surrounded by a high level of confidentiality. There is little public information available on the cases which are being reviewed under this regime. However, with its latest annual report (the second ever published), the French Ministry of Economy (MoE) has provided some insights on its activity regarding FDI screening. One key takeaway of this report is the fact that more than half of reportable transactions were subject to conditions (i.e. 70 transactions were subject to conditions out of 131), which shows how strictly the MoE controls strategic investments.

A recent example of this strict control is the Government’s hostility with respect to the acquisition by US company Flowserve of Velan (Canada), involving a French subsidiary active in the supply of parts for nuclear reactors. According to publicly available information, this subsidiary has been carved out in order to be sold to a domestic acquirer.

Notification requirements

Unlike merger control procedures, notification is triggered irrespective of the parties’ level of turnover. In fact, acquisitions by investors of a French legal entity¹(e.g. corporation, foundation, trust) carrying out sensitive activities are subject to prior authorization by the MoE when:

• a foreign entity is present in the ownership chain of the direct investor. This is assessed by considering the entire ownership chain of the direct investor. If any element in the shareholding chain is foreign, the investor is deemed foreign; and
• the nature of the transaction is such that the foreign investor (i) acquires control² of this entity, (ii) acquires all or part of a branch from this entity³,or (iii) acquires 25% of voting rights from this entity (or 10% for French companies whose shares are listed on a regulated market)⁴. This last scenario only applies to investors from outside the European Union or European Economic Area.

Sensitive activities can be broken down in three categories of sectors:

1. inherently sensitive activities that fall mainly within the defence and security sectors;
2. activities relating to infrastructure, goods and services that are essential to safeguard public order and public security, including, but not limited to, the integrity, security and continuity of energy and water supplies, transportation networks and services, public health, and food security. This category is subject to an assessment to demonstrate the "essential" nature of the infrastructure, good or service in question. It takes into account several factors, such as inter alia the target entity's customers, the nature, specificity and applications of the products/services provided and of the know-how, the substitutability of the activities and their dangerousness; and
3. research and development activities that relate to critical technologies (e.g. cybersecurity, artificial intelligence, robotics, additives manufacturing, semi-conductors, quantum technologies, energy storage, biotechnologies, technologies in the production of renewable energies) or to dual-use items and technologies (which can be used for both civilian and military applications), if they are likely to be applied in the sectors mentioned above.

Sensitivity is determined on a case-by-case basis, according to the characteristics of each transaction (investment sector, market conditions, etc.). In case of doubt whether the investment should be notified, the investor or the target are offered the possibility to request an opinion on whether a business activity requires screening. This is a streamlined procedure allowing investment stakeholders to better plan for a transaction. The MoE will decide, within 2 months, if the company’s business activities require screening.

Review process

Like the merger control procedure, the FDI prior authorization procedure comprises two phases. In Phase 1, the MoE has 30 business days to determine whether to authorize a proposed investment without conditions or to commence Phase 2 for further review. In Phase 2, the MoE has 45 business days to decide whether to authorize the investment with or without conditions or to prohibit it.

 

The MoE assesses the conditions that determine if the transaction falls within its jurisdiction. During the review, it may seek from the investor additional information not provided in the filing. It may also reach out to the French target company to obtain specific information related to its activities.

 

In contrast to the merger control procedure, the absence of response by the MoE does not amount to a tacit authorization.

Penalties

In the event that an investment is implemented without prior authorization, one of the measures that can be imposed by the MoE is the return to the status quo ante. This can be complemented by precautionary measures such as suspension of voting rights and daily penalty payments. The MoE can also impose fines of up to the highest of the following:

• double the amount of the investment;
• 10% of the annual turnover (excluding taxes) of the target company; or
• EUR 5 million for a legal entity or EUR 1 million for an individual.

Key developments

The key trend in the French FDI screening process currently is the broadening of its scope. In August 2023, the French Ministry of Economy has announced that reportable transactions should soon cover targets active in extraction and processing activities of critical raw materials, specifying that “The potential for preying on our technologies and know-how has never been so high,”. Another upcoming change worth mentioning consists in the perpetuation, after 31 December 2023, of the lower 10% stake threshold for the acquisition by a non-EU investor in a target whose shares are listed. This was initially a temporary measure in the context of the Covid 19 pandemic to protect listed French companies against the risk of opportunistic non-European takeovers that could threaten national security.

 

Alongside these tightening provisions, the MoE is implementing clarification and simplification measures to help companies through this burdensome process. It has published guidelines in September 2022, which provide a number of helpful clarifications for companies. A new platform, put in place as of 2nd October, provides a centralized tool to notify and exchange with the MoE’s services.