Political shift

France Takes the 'National' Out of Champions

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Bouygues Télécom cited likely objections from French regulators in rejecting a takeover bid by SFR-Numéricable.
  • Why it matters

    Why it matters

    • The French economics minister wants his country to develop its own version of Germany’s famed Mittelstand of small and medium-sized companies.
    •  
  • Facts

    Facts

    • French economics minister Emmanuel Macron has made it clear he is not fond of large national champions.
    • He admires Germany’s Mittelstand of small- and medium-sized companies and wants France to have a similar sector.
    • Telecoms giant Bouygues Télécom rejected a takeover bid by the larger SFR-Numéricable, believing it would not get regulatory approval for the deal.
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France loves protectionism and has a long tradition of building national corporate champions while shunning competition. But now French economic policy is flirting with a completely different role.

Emmanuel Macron, the current economics minister, does not see the need to encourage the creation of large national corporations, but warns instead that they have negative consequences, for example, by restricting competition at consumers’ expense. His beliefs have already played out in the way he criticized the now-canceled merger of France’s second- and third-largest telecoms.

These are signs of a new industrial policy in France. Yesterday’s behaviors are not dead, but they are dwindling. It used to be considered high political art to create national champions. France presented itself to the world through its top companies and their successes were a source of national pride.

For example, under conservative President Nicolas Sarkozy – a great admirer of liberal, American economics – France merged credit unions with the savings banks. At the same time, Mr. Sarkozy’s economic advisor, François Pérol, practically gave himself the job of chief executive. Today, Mr. Pérol faces charges of illegally accepting benefits.

But the economics minister in the current Socialist government does not bask in the glory of great French battleships of the economy.

For months, Mr. Macron has toured the provinces where the Paris elite used to turn up their noses. He is taking care of start-ups whose names no one knows and whose business models are not as impressive as building nuclear power plants or fighter jets.

France has long been fascinated by Germany’s vaunted “Mittelstand,” the small- and mid-sized companies that power the German economy. Yet up to now, that admiration was not followed by action.

Mr. Macron is changing that. His interest and approach to people who start businesses is new in France. He is no longer betting on the state as the guiding force to decide who is and who is not worthy of support. Instead, he is trying to establish a framework of conditions that help all businesses, ranging from changes in work times to private money for financing.

There’s concern that Patrick Drahi, who owns SFR-Numéricable, is overreaching. The wheel he is turning is continuously becoming bigger and faster.

So it was significant when he praised the advantages of competition in telecommunications and warned against a merger of the second-largest telecoms company, SFR-Numéricable, with the third-largest, Bouygues Télécom. When Bouygues rejected the takeover offer, it cited the likely objections of French regulators.

Patrick Drahi, who owns SFR-Numéricable, has not given up. He revealed further details of his offer late Thursday, and said Bouygues had presented it incorrectly.

But Mr. Macron, who was due to leave for the United States to pursue the interests of small French technology firms known as “French Tech,” has not relented either. Before he took off, the economics minister requested that Mr. Drahi not get so hung up on the belief that bigger is always better.

The warning comes with good reasons. Mr. Drahi’s enthusiasm for debt-financed takeovers comes from the United States, where he once worked. He fully bets on this strategy, which included acquiring the telecom subsidiary SFR from Vivendi for €14 billion. Then in March, he bought the U.S. cable company Suddenlink for €9 billion. He even wanted to make a grab for Time Warner, but was beaten to the deal by cable investor John Malone and Charter Communications.

Mr. Macron believes that Mr. Drahi’s strategy hurts the ability of companies to invest in better networks – because he has to quickly take profits from companies he acquires in order to pay debt service. In the eyes of the economics minister, that jeopardizes the expansion of fast Internet in France.

French telecoms have committed tens of billions of euros in network investments through 2020, and France depends on it. Without fast Internet, companies would be less efficient and promising start-ups would struggle to get off the ground. And that would hurt agile newcomers who are so near to Mr. Macron’s heart.

In addition, there’s concern that Mr. Drahi is overreaching. The wheel he is turning is continuously becoming bigger and faster. And Mr. Drahi is not paying low interest rates, but much higher than average. This tendency is what prompted Mr. Macron’s carefully formulated reference to megalomania.

While economic policy now supports competition and mid-sized businesses, it is the star investor who wants to create a champion, no matter the cost.

It is a shift in roles, but one that makes more sense than the old one.

 

To contact the author: hanke@handelsblatt.com

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