Foreign Investment

Foreign Investments in France: last step of the reform

2018 and 2019 saw both the extension of the sectors subject to foreign investment control and the strengthening of sanctions. 2020 starts with the last step of the reform, which should make treatment of most cases faster, while further extending the scope of foreign investment control to food safety and the press and lowering the applicable threshold from 33.33% to 25%. The new rules will apply to filings submitted as from 1 April 2020.

Key changes are as follows:

Treatment of simple cases is made faster

The new procedure, which will apply in most cases, will take 30 business days (compared to two months under the previous regime). It will apply to all cases for which an authorisation can be delivered without any specific conditions being necessary (which in practice is the most common situation).
 
For the most sensitive cases (i.e. when the Minister for the Economy imposes conditions to preserve French national interests), the procedure will take up to 75 business days (i.e. close to four months). This in line with previous practice and remains quite rare.
 
Silence from the Ministry for the Economy at the end of the reviewing period now means that the request is denied (whereas it meant tacit approval under the previous rules in theory). This should have no adverse consequences in practice, since the previous rules made it very hard for investors to make sure that they were actually benefitting from a tacit approval in any event.
 
Making sure that a company falls outside the scope of the rules is made easier
 
When on the sell-side, such confirmation can now be requested based on a file focusing on the target’s activity rather than on the buyer (whereas current practice was for the buyer to ask, based on a file which was very similar to an actual authorisation request). This should enable sellers to obtain a written position of the Ministry much earlier in M&A processes (rather than waiting for signing, which is the current practice) and should have a significant effect on market practice.
 
Threshold is lowered

One of the most important innovation of the new rules is that the rules on foreign investment control will apply when crossing a 25% threshold in shares or voting rights compared to 33.33% previously, capturing more transactions. This new threshold will not apply to investors located in the European Union (for which the trigger remains the acquisition of control).

Investors having obtained an authorisation to cross the 25% threshold will now be able to acquire control at a later stage based on a simplified notification procedure (with a possibility for the Ministry for the Economy to oppose the transaction within 30 calendar days).

List of sectors is extended

Two new sectors now fall under the scope of the foreign investment regulation: food safety and the press (including online press). The main other change is the inclusion in the list of research and development related to quantum technologies and energy storage.

The list of sectors subject to foreign investment control is now the same for all foreign investors, regardless of whether they are located within or outside the European Union.

Conditions can now be modified

As authorised by the so-called “PACTE” bill, conditions imposed on investors can now be relaxed, notably in the case of unforeseeable economic or legal changes. This is a welcome change. Conditions can also be revised by the Ministry for the Economy, but only if this is provided for in the authorisation or in case this is justified by a change in the control chain or in the shareholding of the target.

Also coming soon: increased cooperation within the EU

In addition, the 2019 EU regulation establishing a framework for the screening of foreign direct investments into the Union will become applicable in October 2020. This EU regulation sets forth a number of basic requirements that Member States adopting foreign investment screening regulations shall follow (including transparency and lack of discrimination between third party countries) and creates a cooperation mechanism between the European Commission and Member States to facilitate coordination of screening decisions (1). The European Commission may issue a non-binding opinion to the attention of that Member State that is reviewing a transaction subject to its approval under its foreign investment regulations, and the other Member States will have the opportunity to provide comments to that Member State. This is not expected to have any further impact on the timing of transactions, since the French Authorities already cooperate with their counterparts throughout the EU in practice.

(1) For further details, please refer to our publication EU endorses new foreign investment screening mechanism, March 2019.