A very French coup. They make it all up as they go along

To the City of London, the Eurotunnel revolt underlines the perverse way in which the country does business. Tim Webb reports
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The Independent Online

The French Revolution took place more than 200 years ago. Try telling that to the board of Eurotunnel, who were deposed last week in a coup d'etat by French shareholders. Unlike in the 1790s, this was a bloodless coup. But despite the absence of the guillotine, it was still pretty shocking.

On Wednesday, small shareholders led by convicted fraudster and former journalist Nicolas Miguet hijacked a company worth around €1.3bn (half its value six months ago). One London-based banker involved in the talks said: "The whole shareholder action was run like a banana republic."

The Queen, who returned on Wednesday night on Eurostar from her Paris trip to celebrate the 100th anniversary of the Entente Cordiale, might have half- expected to see a mob of baying French shareholders massing at the tunnel entrance.

To the City, the Eurotunnel revolt merely underscores French perversity, especially when it comes to business. "It couldn't happen here," they say. But is corporate France, as some claim, a law unto itself, the only place where communism really works? And can it stay that way?

In France, many companies are still owned by the state, especially in the utility and transport sectors, which in the UK were privatised in the 1990s. French companies are heavily unionised, making it harder to cut jobs and weakening the power of management.

In the UK, the prevailing wisdom is that the market will decide whether a company survives or not; in France, the state is far more likely to intervene on "public interest" grounds. Last year the government backed a €3.4bn (£2.2bn) restructuring package to rescue loss-making Alstom, a publicly quoted engineering firm which makes high-speed TGV trains. Alstom's main creditor bank, BNP Paribas, made the ridiculous claim that if Alstom was allowed to fail, it would threaten the French and European financial systems because of the company's €5bn debts.

The French banks were not acting for the good of their fellow Europeans in supporting the restructuring. Francis Mer, the finance minister, presented them with a fait accompli: approve the plan, or the company will go into insolvency and the banks will have to write off their loans. A good relationship with the French government is worth hundreds of millions of euros in advisory fees to the banks. Over the next five years, the government is planning to privatise many of the companies it owns or holds controlling stakes in. When the government asks a banker to do something, it pays to agree.

An old boys' network further cements relations between the state and private sector. Two of the former secretary-generals of the Comité Interministériel de Restructuration Industrielle (Ciri), a state body which advised on government intervention in the 1980s, were closely involved in the Alstom restructuring. Michel Pebereau is now the president of BNP Paribas, while another former Ciri secretary- general, Philippe Jaffré, is Alstom's finance director.

Alstom's rivals have complained to the European Commission, with some justification, that it is receiving unfair state aid. Mario Monti, the Competition Commissioner, was furious with Mr Mer last summer after the Alstom rescue was announced without prior consultation with Brussels. While governments do not wait for EU clearance for rescue deals before going ahead, it is customary to give Brussels advance warning.

It is not the EU's first run-in with France. In October, Mr Monti announced he would take the government to court over its failure to recover €450m in aid to the struggling French IT company Groupe Bull. France has responded by submitting a request to Brussels to clear a new €520m loan, so it can repay the original aid. A couple of years ago France was censured over state aid to Crédit Lyonnais, the bank which was taken back into state control then reprivatised.

One of the French government's biggest privatisation projects is Electricité de France (Edf), the huge state-owned nuclear generator and electricity supplier. The complexity of the group, which owns a swathe of energy companies in the UK including London Electricity, baffles even bankers. It has decommissioning liabilities estimated at €20bn, pension liabilities totalling €50bn and a highly unionised workforce threatening to go on strike if the company is privatised. It is hardly an attractive prospect.

But the government is determined to press ahead with a share placing, so it will happen eventually. One former employee based in the UK says the company almost acts as an arm of the state: "Edf operates in an imperial way. It does not like criticism."

Nor does French luxury fashion group LVMH, which took US investment bank Morgan Stanley to court after one of its analysts was mildly critical of the company, suggesting for example that its product range was "mature". Amazingly, the French courts ordered the bank to pay up to €100m in compensation. Morgan Stanley is appealing.

If the ruling is upheld, it will have far-reaching consequences for corporate France. Following the original verdict, investmernt banks fearful of litigation are already reducing their coverage of French companies. An equity research manager at a German bank said it had not begun coverage of any French companies since the LVMH court case.

He added that, in the longer term, less coverage of French companies by analysts would lead to fewer international investors. "Analysts have to be more careful writing about French companies. Now, when you are deciding whether to extend coverage and the company in question is French, it's one more thing to consider. Over time, the less coverage of French companies there is, the less comfortable international investors will be in holding French shares. There will be an affect. How big it will be I don't know."

The French government's grip on corporate life will loosen once its privatisation programme gets under way. But this is motivated more by expediency than a recognition that state intervention prolongs inefficiency and bad management; selling stakes in com- panies like Edf will help to reduce its ballooning budget deficit. It is doubtful whether the Eurotunnel shareholders' coup is in the long- term interests of the company, given that its precarious position is not due to bad management. But they can hardly be fiercely criticised when the state itself so frequently shows its contempt for the private sector and the free market.

IT COULD ONLY HAPPEN IN FRANCE...

* French pharmaceuticals group Sanofi-Synthelabo makes a €48bn hostile takeover offer for Aventis, its larger rival. Aventis seeks a white-knight bid from Swiss group Novartis, but the French government indicates that the vaccines producer should be kept in French hands on national security grounds.

* A French court awards LVMH €100m after a Morgan Stanley analyst writes a critical report about the French luxury goods company.

* Alstom, the manufacturer of TGV trains and cruise ships, is bailed out with a €3.4bn government-backed restructuring.

* Mario Monti, the EU Competition Commissioner, sues the French government after it fails to recover €450m in government subsidies to loss-making French IT company Groupe Bull.

* Orange minority shareholders issue lawsuits against France Telecom, which is buying out the mobile phone company, saying that its offer is not high enough.

* French shareholders in Eurotunnel, led by convicted fraudster Nicolas Miguet, vote out the board, which it blames for the group's €6.4bn debt.

* Workers at nuclear generator and electricity group Electricité de France march through the streets of Paris protesting against government plans to float a stake in the group.

* Vivendi Universal's French shareholders launch lawsuits against former managers of the media group to get them to pay €54m towards settling a fine in the US.

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