A very private privatisation: Gail Counsell reports on the nationalistic nature of the French sell-off

THE FRENCH take a lot of pleasure in pointing out that 'golden shares' are a Thatcherite idea. Such impeccably capitalistic origins come in handy when defending their own determination to keep a firm grip on the ownership of their soon-to-be-privatised companies.

But few aspects of the planned sell-off - state stakes in 21 companies worth up to Fr350bn ( pounds 40bn) are due to be sold over the next five years - underline so clearly the difference between Anglo-Saxon and Continental attitudes to corporate investment.

It is not simply the rules that bar non-EC nationals from taking more than 20 per cent of a company; it is also the way the government intends to use a battery of techniques to 'stabilise' control of privatised groups.

These include the prior recruitment of trusted key stakeholders, the noyaux durs or 'hard-core' investors, cross-shareholdings, and, in certain yet unspecified strategically important companies, 'golden shares' giving the government special voting powers. All have one objective: to protect privatised companies against hostile takeovers or asset-stripping.

Yet this 'capitalism without capital', as critics have dubbed it, does have the respect of a broad consensus of French financiers and industrialists who see the need to keep privatised groups in friendly hands as far as possible.

At a recent conference held by Paris Europlace, a group of the Gallic good and great that promotes the French capital as a financial centre, potential international investors repeatedly raised the subject as one that worried them. As Tristan Hillgarth, chief executive of the investment group Invesco Continental Europe, politely pointed out to assembled delegates: 'It is essential companies are managed for all shareholders, not just small ones or a few hard cores. We like straightforward things. We don't like companies which invest in another company which is in another industrial grouping.'

Rather more grittily, Ulrich Grete, chief executive of Union des Banques Suisses, made it clear that he viewed the nationalistic and xenophobic tendencies of the French as one of the greatest deterrents to investing in the Paris market.

Both warnings fell on deaf ears. French privatisation is driven by pragmatism, not ideology. It is based on the government's need to raise money to plug the deepening hole in its finances and the desire of many nationalised companies to get access to the equity markets.

The notion that the 'discipline of the marketplace' in the shape of the hostile takeover is a beneficial side-effect of this process is viewed with horror. Hence the need to 'stabilise' the ownership of privatised companies.

At Rhone-Poulenc, the chemical company that is a leading candidate to be one of the first on sale, Jean-Pierre Tirouflet, the finance director, is robust in his defence of noyaux durs and the like.

Having been partly sold off during the initial round of privatisation in the mid-1980s, Rhone is now about 62 per cent state-owned. Almost two-thirds of the government stake, worth about pounds 2bn, is directly held, with the rest owned through other nationalised groups.

It is unclear whether the state will seek progressively to reduce its stake or will go for a 'big bang' sale. Either way, it is likely to ensure that at least 25 per cent of the company finds its way into safe hands. Rhone is already looking to identify and encourage large banks, insurance companies and 'maybe one industrial company with whom we'd have an industrial common interest', to take on this role, according to Mr Tirouflet.

He argues that the objective is to ensure that the company has a firm strategic base. 'You need to have shareholders who will put their money into the company and who are very keen about the future of the company and its profitability.

'In our mind it is not a means of protection, it's more like a mirror, someone you can discuss with, have a dialogue with, and share your strategy and make decisions with. I feel that is very important to us. It is in that way we feel a group of permanent shareholders can be very useful to us.'

He dismisses critics who say it will make for a cosy situation benefitting management and key shareholders, but not necessarily majority investors. 'The people we have in mind (to be core shareholders) are mostly financial investors, so I don't feel that any harm can come from that.'

Shrugging his shoulders, he also insists that Anglo-Saxon countries have their own ways of ensuring the same objective.

'When you look at US companies which are under the scrutiny of the association of investors and so on, many of them have poison pills and cannot be taken over very easily. So you cannot say that the English-speaking countries are white and the rest of the world is black.'

Michel Albert, chairman of Assurances Generales de France, another early privatisation candidate, says that politically the French government cannot afford to be attacked for selling national assets at too low a price. 'I'm not proud of this - it has to be careful about who buys whom,' he said.

As a result, he says, creating stable shareholder bases is necessary in the short term. In the longer term, however, he believes the restrictions will wither. 'Little by little, they will relax.'

Mr Tirouflet argues that international investors need to understand how privatisation is a different affair in France to grasp the legitimate nature of the need to 'manage' the shareholder base of privatised groups.

'I went to a conference in Austria and Mr (Francis) Maude (the former UK trade minister) was talking about British privatisations and I was very much surprised because it is not really the same sort of exercise,' he says. In the UK, he points out, the emphasis was on selling off badly run, underperforming groups, especially the utilities. Privatisation led to a significant improvement in management and productivity in those companies.

'But in France we are privatising companies which are already essentially belonging to the competitive sector and have effectively been run as private companies since they were nationalised.'

The French have traditionally run their public sector in a highly competitive fashion, unlike most other European countries, where state-owned companies have had great difficulty because of restraints imposed for largely political reasons, he says.

'We are not at all in this situation. We gained considerable autonomy from the government at the beginning of the nationalisation period (in the early 1980s) and the government has never interfered with the day-to-day management.'

Even if the state wanted to, untangling cross-shareholdings would be a daunting task pre-privatisation. For example, AGF is Rhone's biggest shareholder, with an 8 per cent stake, and has 7 per cent of another privatisation target, the bank Credit Lyonnais.

At the end of this month the initial three to six privatisation candidates will be named by the government, with the first due in the autumn. By then it will have to have such safeguards as it can muster in place.

Yet finding fresh noyaux durs this time around may be much more difficult than on the occasion of the last sale. Times are hard in France, companies are strapped for cash, and the groups on the block, with price-earnings ratios twice their 1986 levels, look more expensive than before.

For that reason, if no other, the French cannot afford to ignore international investors' concerns about such Gallic practices.

(Photograph omitted)

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