Highly anticipated for several months, an “anti-takeover” décret (a French executive decision taken by either the President or the Prime Minister) was published on 30 December 2005.

Following rumour of a takeover of Danone by an American company, the French Economy Minister announced the publication of a décret allowing French authorities to control foreign investments that are carried out in France.

From now on, the Economy Minister can ask for certain guarantees from foreign investors wanting to takeover French companies in “sensitive” sectors.

The décret aims to apply the provisions of the Finance and Monetary Code, requiring authorisation of the Economy Minister for foreign investments in France that, even occasionally, involve public activities or varied areas such as:

– Activities which threaten the public order, public security or national defence;
– Activities involving research, production, or sales of arms, munitions, explosive powders or substances.

The décret defines the nature of the protected activities and the conditions in which authorisation would be granted by the Economy Minister.
A Streamlined Authorisation Regime for European Businesses

The new décret allows for different treatment for EU countries and non-EU countries, the EU countries benefiting from streamlined authorisation procedures.

The décret specifically defines the notion of an investment, which is more widely defined for non-EU countries.

The following will be considered as an "investment":

– any takeover of a company headquartered in France,
– the direct or indirect acquisition of all of part of a branch of a company headquartered in France; and
– crossing a 33.33% threshold of direct or indirect stock holdings or voting rights of a company
headquartered in France.

These different types of investment must have pre-authorisation if they are made by individuals who are non-French nationals, or by companies headquartered outside of France or by a French national, resident outside of France, in the domains listed in the décret.

11 sectors involving defence and gambling are listed. It was the initial aim of the French authorities to include other areas, in addition to defence and gambling.

The sectors concerned and deemed sensitive are:

– Gambling,
– Private security activities,
– Research, development, and production activities in relation to methods with potential illegal uses for terrorist activities, pathogen or toxic agents and/or the clean up consequences of such methods,
– Communication interception equipment and listening devices,
– Information technology systems,
– Computer security,
– Goods and technologies with dual uses (civil and military),
– Cryptology and any industry supplying the Defence Ministry,
– Activities exercised by depository companies of national secrets,
– Research, development, and production or commercial activities involving arms, munitions, powders and explosive substances for military ends,
– Activities carried out by companies who have concluded a research contract or an equipment supply contract for profit with the Ministry of Defence.

Conversely, an "investment", where other EU Member States are concerned, only involves the takeover of a French company or the direct or indirect acquisition of a branch of a French company. Thus, a European company wishing to make foreign investment in France does not have to seek pre-authorisation of the Economy Minister in the event that its direct or indirect holdings, or its voting rights in a French company cross the 33,33% threshold.

However the décret states that European investments must have pre-authorisation when the activity concerned involves cryptology or a company possessing national defence secrets, or if the activity involves research, production or commercial activities involving arms, munitions, powders, and activities carried out by companies who have concluded a research contract or equipment supply contract for profit with the Ministry of Defence.

On the other hand, only the direct or indirect acquisition of the whole part of a branch of an activity requires a company to follow the authorisation procedure set out for non-EU countries concerning activities listed in the décret – that is all takeovers of a French company exercising the same activities are not required to seek authorisation.

The difference in treatment between EU and non-EU investors have been eased by certain provisions in the décret which are applicable to both. For instance, authorisation by the Minister is considered to have been given when companies in the same group make the investment.

Guarantees that the Economy Minister can seek

The authorisation granted can be accompanied by conditions that ensure the projected investment does not threaten national interests.

In any event, such conditions are fixed so as to respect the principle of proportionality.

The Economy Minister can also require an investor to safeguard the continuity of its activities, industrial capacity, research and development, or the maintenance of a steady level of supply to the French company.


If the Economy Minister believes that a foreign investment is or was made without taking the above mentioned rules into account, he has the power to enjoin the investor from further pursuing the operation, to modify it, or to remedy the situation at its own cost.

This injunction can only take place 15 days from formal notice of the Minister’s observations being given to the investor.

If the injunction is ignored, the Economy Minister, after allowing the investor to offer his own interpretations, without prejudicing the possibility to restore the situation, can impose a sanction, the maximum amount being double the amount of the irregular investment. The amount of the pecuniary sanction must be proportional to the gravity of the non-respect of the rules.

Brussels’ Reaction: The Free movement of Capital

It was not long before the EU Commission demanded that France make certain modifications to the décret in the name of the free movement of capital. The government amended the décret in a correction published in the French Official Journal on 4 January 2006.

According to the EU Commission, the décret, as it was initially drafted, created too great a disparity between EU member states and non-members.

The Commission, therefore, demanded that the government include the European Economic Area, allowing Norway, Switzerland, and Lichtenstein to benefit from the relaxed procedure for Member States.

Since then, Brussels has expressed doubts as to the compatibility of the text of the décret with EU Law as well as concerns that the scope of décret is disproportional to the goal pursued. An infringement procedure was opened at the beginning of April this year, and France now has two months to respond to the Commission.

In Brief: A Look at Other Approaches

European Legislation

Article 296 of the European Communities Treaty provides that the rules governing investments in the defence sector are left to Member States.

National legislation must, however, respect EU law concerning the control of competition and exports.

United Kingdom : There are no specific regulations for foreign investment.

Provisions in the Enterprise Act of 2002 relate to the control of mergers.

Germany : Pre-declaration required

Law and executive order published 28 July 2004: the list of activities concerned does not cover the arms industry. Thus, the list is less extensive than in France.

The law establishes that the ability to conclude legal acts involving
German companies that produce or develop armed weapons, registered cryptology systems, or other arms can be withheld in order to guarantee German security interests.

The acquisition of a German company must be pre-declared, such as the direct or indirect holding of a German company by a foreign company or by a German company where more than 25% of the rights to vote are held by a foreign company, if the direct or indirect share of the vote of the purchaser is going to go beyond a 25% threshold.

France and Italy : Pre-authorisation required


Article L. 151-3 of the Finance and Monetary Code relative to foreign investment in strategic sectors (modified by Article 30 of the law 2004-1243 of 9 December 2004).

Décret nº2005-1739 of 30 December 2005 : list of strategic sectors


Law of 10 October 1990 relative to merger operations.

Law nº474 of 30 July 1994 and the décret of the President of the Council of 12 May 1999: the Economy Minister has the power to authorise the acquisition of the capital of companies once the operation concerns more than 5% of the company’s capital.

(Source: Information report of the Assemblée Nationale on the foreign holdings in the European arms industry, nº2202 of 23 March 2005)