French veto to the acquisition of Photonis par Teledyne
Le December 23, 2020 Par Jérémy BERNARD
Applying legislative and regulatory measures to control foreign investments in France, the French Government has banned the American Teledyne from buying French Photonis.
1. France established a scheme for controlling investments made by foreign investors, whether originating or not from the European Union, in French companies and businesses operating in industries deemed strategic by the French Government. This scheme is provided for in Articles L. 151-1 et seq. and R. 151-1 et seq. of the French Monetary and Financial Code (Code monétaire et financier). It was the subject of a major reform by Decree (décret) No. 2019-1590 of 31 December 2019 and an Order (arrêté) of 31 December 2019 as well as an adaptation to the current crisis born from the COVID-19 pandemic by Decree No. 2020-892 of 22 July 2020 (see our articles of 30 April and 29 July 2020)
2. Based in Mérignac, France, Photonis is a French medium-sized company employing more than a thousand people. It specializes in the development of technologies and the production of light intensification equipment. These technologies and equipment are used both by the nuclear industry and by the military, including for night vision devices and the megajoule laser used for nuclear weapon test simulations. Photonis is currently owned by the Ardian fund, which intends to unwind its stake and sell it to a third party.
3. Teledyne Technologies Incorporated (Teledyne) is a US conglomerate listed on the New York Stock Exchange. It is organized into four main divisions: digital imaging, instrumentation, engineering systems, and aeronautical and defense electronics. Supplier to the American and French militaries, Teledyne was interested in taking over Photonis and had entered into exclusive negotiations with Ardian to do so during the first quarter of 2020.
4. Falling within the scope of the French scheme for controlling foreign investments in France, the possible acquisition of Photonis by Teledyne was particularly apprehended by the French Government, in particular the French Ministry of the Military. In March 2020, the French Government had used this control scheme to try to impose an alternative purchaser by pushing the French groups Thales and Safran to take over Photonis, without success. Discussions then resumed between Ardian, Teledyne and the French Government to find an understanding preserving French strategic interests.
5. These discussions were unsuccessful. On December 18, 2020, the French Minister of the Military, Ms. Florence Parly, informed by press release that the French Government was going to prohibit Teledyne from proceeding with the acquisition of Photonis based on the French foreign investment control scheme. Ms. Parly also released that an alternative solution was under study.
6. This is the first time that the French Government prohibits a transaction based on the French scheme for controlling foreign investments in France. So far, it has been content with dissuading the foreign investors from carrying out their operation and using the threat of a ban to obtain adjustments to the operation to safeguard France’s strategic interests.
7. This veto is a signal given to market players with the aim of reminding them that the control of foreign investments in France should no longer be treated lightly. On the contrary, the parties to a transaction (seller, purchaser, bank advisor and lawyers) must integrate this control into the structuring of their operation from its conception as they do with the control of concentrations to avoid being opposed a prohibition by the French Government.
8. This veto is also a warning sent to the main extra-European powers, mainly the United States and China, to inform them that the French Government intends to protect its strategic companies and businesses from foreign takeovers. This signal is sent in a context of strengthening the control of foreign investments in Europe with the adoption of Regulation (EU) No. 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments in the Union and the prohibition by the German Federal Government of the acquisition of the German satellite and radar technology company IMST by the Chinese China Aerospace and Industry Group (CASIC) in December 2020.
9. In parallel with the French veto on the acquisition of Photonis by Teledyne, the French Ministry of Economic Affairs, Finance and Recovery has made public the extension from 31 December 2020 to 31 December 2021 of the temporary reduction of 25 at 10% of the capital holding threshold triggering the review of foreign investments (see our article on the subject).
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