To lower the risk of opportunistic trading resulting from the pandemic, the French government temporarily tightened its control over investments in strategic public companies.

On 29 April 2020, the Ministry of Finance announced tighter controls over foreign investments into French companies, to protect them against opportunistic takeovers as a result of the COVID-19 pandemic.

This announcement was followed by a Decree and an Order, both issued on 22 July 2020, three weeks after the end of the state of emergency. These provided for a specific screening mechanism which is applicable to listed companies until 31 December 2020. However, with the prolongation of the State of Emergency, one can wonder whether such regime will not be extended as well.

Who is impacted?

From 6 August to 31 December 2020, investors from outside the EU/EEA who intend to have voting rights of 10 percent or more in a French listed company which is active in a strategic sector are subject to a screening mechanism.

To protect strategic assets, the threshold, which is usually set at 25percent, has been lowered to 10 percent.

This mechanism does not apply to investors who already held voting rights of 10 percent or more by 6 August 2020. The Decree targets foreign investors who will reach this new threshold either individually or collectively, in a concerted way.

Paradoxically, investors who own 25 percent of voting rights or more should also benefit from the simplified mechanism.

Which sectors are impacted?

The list of strategic sectors remains unchanged: it encompasses over 23 sub-categories of sovereign and strategic assets for public order, defense, and munitions, as well as data, energy, public health, press, agriculture, and R&D in critical technologies like cybersecurity, robots, artificial intelligence and biotechnology.

Listed companies that are unsure of whether they will be impacted may request a prior opinion from the Ministry of Finance on whether their activities fall into the scope of the French foreign investment rules.

How does it work?

The Decree exempts investors from the standard approval mechanism, which typically lasts over one month and requires them to file a detailed list of information.

Instead, in this new temporary simplified procedure, the list of requested information is limited to the identity of the concerned investor, their current and future rights in the company, and information similar to the notice provided to the Autorité des marchés financiers for declarations regarding the crossing of thresholds.

Notice of the contemplated investment should be sent to the Ministry of Finance, which may object to it within 10 business days.

When should investors act?

The investment may take place from 10 business days following the notification, and no later than six months thereafter, unless the Ministry of Finance has objected within 10 business days.

In practice, however, investors should bear the following factors in mind:

• If the Ministry of Finance has any doubt, it will likely object to the use of the simplified procedure. The simplified procedure does not allow the Ministry to impose conditions to protect the strategic assets at stake.
• Investors whose request has been denied by the Ministry will still be able to request the standard approval mechanism, which will take 30 days to review, provided there is no issue raised by the Ministry. It is therefore advisable to anticipate as much as possible, especially as the list of requested information is limited.
• If approved, the investment must take place within six months. If the transaction is not completed within this timeframe, investors would need to file a new request, either through the simplified procedure, or through the standard approval mechanism.

In practice

The simplified procedure aims to reconcile two conflicting needs: on the one hand, the need for the French government to prevent opportunistic trading as a result of the pandemic and, on the other hand, acknowledging the specific circumstances of listed companies.

In that respect, the 10 days waiting period seems very long when considering the timeframes within which trading usually takes place.

It also raises several practical complexities, especially when only some investors are subject to the screening mechanism, while others who participate to the same activity are not.

The effects of these measures could be detrimental and counter-productive, in that these complexities exert a deterring effect on foreign investors who would have otherwise been willing to support companies weakened by the pandemic.

Investors failing to follow the screening mechanism would be subject to the standard range of fines, which can go up to many times the investment value.