Foreign investments and Covid-19: France implements a stricter approach
Frédéric Saffroy and Jeanne Quéneudec
The Covid-19 crisis confirmed and accelerated the recent trend in Western countries to strengthen the foreign direct investments (or “FDI”) screening regulations (see our Newsletter dated March 2019). Indeed, France decided to broaden the scope of that screening and to apply stricter criteria to share acquisition in sensitive companies.
R&D in biotechnologies now subject to authorization
On 27 April 2020, the French Minister for Economy signed a decree adding “biotechnologies” to the list of critical technologies subject to screening when the French target’s business includes research and development in such sector. The list of critical technologies already includes cybersecurity, artificial intelligence, robotics, 3D printing, semiconductors, quantum technologies and energy storage.
As it is the case with all these technologies, there is no legal definition of “biotechnologies”. Given the timing of this addition, it obviously includes research for a vaccine against the Covid-19. But it is certainly broader and aims at protecting French companies active in Life Sciences, not only Human Health, but also animal health or plant genetics. Protecting Public Health is already a objective of the French FDI screening regulation, but it certainly strengthens that screening by preventing any circumvent of it. Finally, it is also consistent with the EU Regulation 2019/452 of 19 March 2019 implementing a European FDI screening framework and cooperation.
Lowering the shareholding threshold from 25% to 10%
Given the downfall of Stock Exchanges with the Covid-19, the risk was too high to see foreign investors – not necessarily friendly… - purchasing shares of sensitive French companies at low price. Therefore, the Minister also decided the temporary lowering of the voting rights threshold in sensitive companies requiring prior authorization.
A prior authorization is mandatory for any takeover (i.e. more than 40% or 50% of the voting rights depending on the definition of control) by a foreign investor of any sensitive French company. This applies to both EU/EEA and non-EU/EEA investors. Such authorization is also mandatory whenever a non-EU/EEA foreign investor crosses the threshold of 25% voting rights within the company (its used to be 33.3%).
The Minister decided to lower that threshold to 10%, under certain conditions:
- this only applies to listed companies,
- this does not apply to EU and EEA investors,
- this measure should end on 31 December 2020,
- a special procedure is implemented, pursuant to which the Minister will have 10 days to decide whether the transaction should be subject to further review (the usual timescale is 30 days).
This measure should enter into force on 1st July 2020, subject to a decree to be first reviewed by the Conseil d’Etat.
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France foreign investment screening in a nutshell
France is one of the most comprehensive regime in Europe, with Germany, Italy and the UK ones: any investment – direct or indirect - through a share deal (i.e. acquisition of a controlling interest or, for investors outside the EEA, of more than 25% of the target company’s voting rights) or an asset deal (i.e. all or part of a branch of activity of a company) in a French entity active in regulated sectors is subject to a mandatory notification and a prior approval by the Minister for Economy.
Regulated sectors include, for both EU and non-EU investors, (i) activities likely to harm interests of national defence, public order or security as such (classified activities related to National Defence, IT systems for public security purposes and data-storage activities) or (ii) activities relating to critical infrastructures, goods or services (in relation to key France assets, energy, water, transportation, space operations, communications, IT systems of Police, Gendarmerie and Customs, critical infrastructure, public heath, agricultural products, press…) and (ii) R&D activities in the abovementioned sectors and related to critical technologies as defined in the Decree of 31st December 2019 (cybersecurity, artificial intelligence, robotics, biotechnologies), and to dual use goods and technologies.
There are no financial threshold to trigger the foreign investment review.
Do not hesitate to contact the Compliance and Regulatory team should you need any further information.