French law does not provide for any materiality threshold— even transactions of modest size can be captured for review.
The Bureau Multicom 2, which is located within the Ministry of Economy's (MoE) Treasury Department, conducts the review. The process generally involves other relevant ministries and administrations depending on the areas at stake. Since January 2016, a commissioner of strategic information and economic security (attached to the MoE) also assists the Treasury when coordinating inter-ministerial consultations.
The foreign investor files a mandatory request for prior authorization, which must include detailed information on the investor and its shareholders, the target, the pre- and post-closing structures, financial terms of the transaction and the sensitive activities at stake.
TYPES OF DEALS REVIEWED
Transactions reviewed under the French Monetary and Financial Code (MFC) include:
- Direct or indirect acquisition by a foreign investor of an undertaking whose registered office is established in France
- Direct or indirect acquisition by a foreign investor of all or part of a branch of activity of an undertaking whose registered office is established in France
- For non-EU investors only, acquisition of more than 33.33 percent in the capital or voting rights of an undertaking whose registered office is established in France
French law does not provide for any materiality threshold—even transactions of modest size can be captured for review.
The review only applies to foreign investments made in sensitive activities listed in the code. For EU-based investors, these activities include defense and security-related activities and dual-use technologies. For non- EU investors, additional activities are captured (e.g., gambling).
The activities reviewed under the MFC were expanded pursuant to a decree issued in May 2014 (the Montebourg Decree), which applies to both EU and non-EU investors. The Montebourg Decree significantly extended the scope of reviewable activities to "activities relating to equipment, products or services, including those relating to safety and the proper functioning of facilities and equipment, essential to guarantee the French national interests in terms of public policy, public security or national defense" in the following sectors: electricity, gas, oil or other source of energy; water supply; transportation networks and services; electronic communication networks and services; an installation, facility or structure of vital importance; and protection of the public health.
SCOPE OF THE REVIEW
MoE assesses whether the transaction may jeopardize public order, public safety or national security based on the information the investor provided in its submission. Follow-up Q&A and meetings with MoE and other ministries involved are customary. The seller may also be requested to cooperate with the review.
Once the review is completed, the MoE may:
- Authorize the transaction without condition (rather rare)
- Authorize the transaction subject to mitigating conditions/undertakings aimed at ensuring that the transaction will not adversely affect public order, public safety or national security (most of the cases when the MoE decides to review the investment)
- Refuse to authorize the transaction if adverse effects cannot be remedied (very rare)
Mitigating conditions/undertakings may pertain to the investor's preservation of the continuity of the target's activities and the security of its supply of products or services (for example, maintaining existing contracts with public entities, maintaining R&D capabilities and production in France). They may also include corporate requirements such as ensuring that sensitive activities are carried out by a French legal entity, and/or imposing information-access/governance requirements involving French authorities.
MoE review is a mandatory process. If a transaction subject to review is closed without MoE's prior approval, MoE may order the investor(s) not to proceed with the transaction, to amend the terms of the transaction or to unwind the transaction at their own expense, (potentially imposing a financial penalty of up to twice the amount of the original investment). Moreover, contractual agreements in breach of the mandatory process are deemed null and void. Violation of foreign investment rules may also give rise to criminal sanctions of up to five years of imprisonment and a fine of up to twice the amount of the investment.
TRENDS IN THE REVIEW PROCESS
Following the Montebourg Decree, the scope of covered activities has been significantly extended to several key industries, including the manufacturing of sensitive information technologies, related products or network industries. Any transaction involving the foreign acquisition of a French business in one of the specified industries should be carefully screened to assess if prior authorization is required. Involvement of other interested ministries in the process has also become customary.
HOW FOREIGN INVESTORS CAN PROTECT THEMSELVES
It is critical for foreign investors to anticipate foreign investment control issues ahead of planning and negotiating transactions. The responsibility for filing lies primarily on the buyer and, if the transaction falls under MFC regulation, prior clearance by MoE should be a condition of the deal. The buyer may also seek a ruling from MoE to confirm whether a contemplated transaction falls within the scope of the MFC.
The seller's cooperation in the preparation and review of the filing is important. If the parties expect that conditions or undertakings will be imposed, the buyer should anticipate discussions with MoE and other interested ministries that may impact the timeline for clearance. In addition, the buyer should consider including a break-up fee or opt-out clause in the transaction documentation to protect its interests if the conditions imposed on the transaction are too burdensome. Preliminary informal contacts with French authorities may also be advisable.
REVIEW PROCESS TIMELINE
MoE must make its decision within two months of its receipt of a complete authorization request. Longer periods (e.g., three or four months) should be anticipated if MoE requests supplemental information and considers imposing conditions to clear the case.
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