Alert 28 June 2021

Navigating French Foreign Investments In Light of Heightened Scrutiny As a Result of COVID-19

Last December, after several months of discussions and some twists, the French Minister of Economy (“the MoE”) refused to bless U.S.-listed Teledyne Technologies Inc.’s acquisition of France-based Photonis, which specializes in production of night vision for defense applications for the French Army and NATO, among others. The MoE decided to exercise its veto right to protect French sovereignty and national security despite significant commitments that would have been agreed to be given by Teledyne Technologies to the French state to guarantee French sovereignty, but were ultimately not considered satisfactory by the French Ministry of Defense[1].

A few weeks later, the MoE invoked the French food sovereignty to immediately nip in the bud the very preliminary discussions regarding a potential public takeover of Carrefour, one of the French pioneers and leaders in the large food retail business and the largest French private employer, by Alimentation Couche-Tard inc., the leader of the Canadian convenience store industry. The position of the MoE expressed prior to any agreement being reached between Carrefour and Alimentation Couche-Tard has been seen by some as a negative message sent to the business community regarding foreign investments in France.

If the French State’s veto against the sale of Photonis to a foreign investor would, more than likely, have been exercised without the COVID-19 pandemic, the pandemic has probably been one argument, among others, in the MoE’s decision to reject the Carrefour take-over by a non-French investor. The COVID-19 pandemic has obviously accelerated the trend towards the defense of the French sovereignty not only in respect of French critical healthcare-related assets and technologies but also other strategic assets and technologies whose critical importance for the French sovereignty was publicly highlighted by the COVID-19 crisis (i.e. food production; supply and distribution; energy and water supply; goods and products transportation; biotechnologies; cybersecurity).

The protection of assets and technologies of critical importance for the European Union and its Members States has also been an area of concern for the European Commission during the COVID-19 pandemic, highlighted by two communications in March 2020[2]. The European Commission urged Member States to be vigilant and make full use of their national foreign investments screening mechanisms (or to introduce or reinforce such mechanisms), and in the meantime, to use all other options available at the level of the European Union and at national level to address and screen sensitive transactions in order to ‘avoid that the COVID-19 crisis leads to a loss of critical assets and technology’.

The head of the Service de l’information stratégique et de la sécurité économiques (“the SISSE”)[3] recently pointed out during a hearing at the Senate that France is now facing “a second wave of very strong foreign economic pressures” that would be mainly driven by the relative weakness of French companies and that the SISSE is therefore currently extremely and highly vigilant for acquisitions by foreign investors of those French strategic companies under high scrutiny by the SISSE in various sectors.

Overview of French Foreign Investments Regulations

Much like many countries, the French State implemented, two decades ago, foreign investments regulations (“the Foreign Investments Regulations”) aimed at controlling foreign investments in certain sectors which could adversely affect the interests of the national defense or the exercise of the public authority or public order or security (the so-called ‘strategic’ or ‘sensitive’ activities). The list of strategic activities under the Foreign Investments Regulations has been significantly expanded and reinforced in the past (e.g. 2014) and recent years (in 2018, 2019 and 2020) with a view to respond to public criticisms after the disposal of some French high-profile strategic assets to foreign investors, and to address some emerging global challenges (e.g. food security, energy and water supply, aerospace, robotic, AI, cybersecurity, etc.) and then the COVID-19 pandemic (biotechnologies). As of today, provided they could adversely affect the national defense interests, contribute to the exercise of the public authority or adversely affect public order or public security, strategic sectors include: defense activities; dual-use goods and technologies; gambling (save casinos); energy; water; transportations; installation, facility or structure of vital importance; protection of the public health; electronic communications; new technologies; security of information systems; cryptology; aerospace; data centers; medias; food safety; and R&D activities of critical technologies (cybersecurity; AI; semiconductors; biotechnologies; robotic; quantic; etc.), among others.

Under the Foreign Investments Regulations, the acquisition (whether directly or indirectly, alone or in concert) of the control, or the acquisition of all or part of the business, or (except for certain specific limited transactions and unless the investment is made by an EU or EEA investor) the crossing (whether directly or indirectly, alone or in concert) of the threshold of 25% of the voting rights of a company governed by French law that conducts strategic activities, by a foreign investor (being, any foreign individual, French individual being tax resident abroad, foreign law governed entity or French law governed entity controlled, at any level of its chain of control, by one or more of the abovementioned natural or legal persons) requires the prior authorisation of the MoE. Besides, due to the COVID-19 pandemic, until 31 December 2021, the crossing by any non-EU or non-EEA investor of 10% of the voting rights of a French law-governed company, whose shares are listed on a regulated market and conducting strategic activities, are in the radar of the MoE but pursuant to a simplified administrative screening process.

The MoE can deliver its authorisation subject to commitments from the foreign investor. Commitments aim at guaranteeing the preservation of French national interests and French sovereignty and must comply with the principle of proportionality. They cover matters such as: continuity and security of the concerned strategic activities within the French territory; safeguarding the knowledge and know-how of the concerned strategic activities; adapting the internal organisation and governance of the French strategic target entity; and the modalities to exercise the rights acquired in that entity following the investment. Disposal of part of the shares of the French strategic company or all or part of its relevant strategic business to a third party blessed by the MoE can also be required.

The European Union also adopted in March 2019, with effect in October 2020, a common framework for the screening by Member States of foreign direct investments into the European Union and a mechanism for cooperation between Member States and between the Member States and the European Commission regarding foreign investments made in certain sectors which are likely to affect security or public order.

Key Takeaways When Investing in, or Divesting, a French Strategic Business

The reasons supporting the strengthening of the Foreign Investment Regulations, together with the concerns triggered by the COVID-19 pandemic and the (potential) financial weakness of some French strategic companies, led French authorities to increase their vigilance for foreign investments in strategic sectors[4]. Despite a slowdown of foreign investments due to the pandemic, 275 transactions were screened during 2020 by the MoE over a total of 1,215 foreign investments.

It does not mean that foreign investments in strategic activities would become limited or impossible but that any seller of, and any foreign investor in, a French strategic activity should:

  • Have proper and up-to-date knowledge of the Foreign Investments Regulations;

  • Assess at a very early stage of the proposed transaction, through proper investigations, whether the French Foreign Investments Regulations will, or could, apply;

  • Assess the potential impacts of the French Foreign Investments Regulations on the timing and terms of the proposed transaction;

  • For a seller, assess which foreign investors could potentially be approached depending on the level of sensitivity of the concerned French assets; and

  • For a potential buyer, take into consideration that commitments could be required by the French State to clear the transaction.


[1] According to a press release of Teledyne of last September, the commitments would have been, among others, a 10% co-investment of Bpifrance (the French sovereign fund) together with a veto right of Bpifrance on certain operations and management decisions.
[2] Communications of 13 March 2020 (Com(2020) 112 final) to the European institutions and of 25 March 2020 (Com(2020) 1981 final) to the Member States.
[3] The SISSE is a dedicated department of the MoE set up in 2016 and entrusted with the French coordination among various French ministers for the protection of the French economic sovereignty. Its mission includes to scrutinize foreign approaches of French strategic assets and technologies. 
[4] The vigilance is also conducted through the SISSE which set up a classified list of French strategic companies with critical technologies and of French critical or sensitive technologies. These French strategic companies are to be protected in priority from foreign approaches, either with a view to block or to control and subject to conditions, and are thus under specific scrutiny.