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Summary

  • French corporates maintain their independence notably thanks to a strong French state lobbying against foreign companies.
  • But if French state proves unable to block a bid from GE on Alstom, as it is losing influence, it could trigger other bids from global companies on French corporates.
  • Here is our list of French M&A targets divided into three categories: French usual suspects, French champions lacking global size, French gems.
  • Our 10 targets: Danone, Société Générale, Rémy Cointreau, Accor, Nexans, Maurel & Prom, Legrand, Edenred, Ingenico.

General Electric (NYSE:GE) bid on Alstom is, of course, key for Alstom (OTCPK:ALSMY) future but also for a string of other French corporates. In the attempt of GE to take over Alstom Energy business, again, French government, despite having no stake in the company, is trying to dictate what Alstom board should decide. It is the same old story made of dissuasion (no more public order to Alstom if you don't do what we say…) and national security claims (Alstom provides turbines to French military submarines)… this story has been heard lots of times, notably in 2005 when the French government prevented a bid from PepsiCo (NYSE:PEP) on Danone (OTCQX:DANOY) (food is a matter of national security in France! seriously…), or more recently when Yahoo! (NASDAQ:YHOO) considered a bid on Dailymotion (owned by Orange (NYSE:ORAN), controlled by the French state). But, since 2005 and the Danone story, French state has lost some influence in business affairs as illustrated, for instance, by the successful bid of Mittal on Arcelor (NYSE:MT) (despite strong opposition of the government) or the recent announced merger between Lafarge (OTCPK:LFRGY) and the Swiss Holcim (OTCPK:HCMLY).

In a global environment where M&A is back on the agenda of big corporates and where French companies are still penalized by a weak domestic environment and where the State is less and less a 'poison pill', we feel France should be an interesting field for acquisitions by foreign players.

We thus establish a list of ten M&A targets that could be divided in three categories with companies ticking multiple boxes: the 'usual suspect' category, the 'French champion lacking a global size' category and the 'French gem' category.

French usual suspects

1) Danone: As explained above, Danone independence is only due to a strong lobbying of the government in the summer 2005 (D. de Villepin was Prime Minister at this period, the same that made a memorable speech at the UN against war in Iraq). He explained that Danone yogurts were key assets for France and thus prevented PepsiCo to engage in a takeover bid in a hostile context. If, in the GE/Alstom affair, the government appears to be unable to prevent the bid, PepsiCo or any other foreign companies (Coca-Cola (NYSE:CCE), Nestlé (OTCPK:NSRGY)…) may consider a bid.

2) Société Générale (OTCPK:SCGLY): A top bank with leading positions in some business lines. SG had been subject to hostile takeover bids in the past (BNP (OTC:BNPZY)…). It would be a bold move for large banks such as BBVA (NYSE:BBVA) or Santander (NYSE:SAN) (who recently acquired Banque PSA in way to enter the French market through the consumer credit market)

French champions lacking a global size

Alstom is a good example of a French company with excellent expertise in its field but lacking a global size. GE bid would enable Alstom to gain this global reach.

3) Rémy Cointreau (OTCPK:REMYY): Independent wine/spirit company, world n°2 in cognac and highly dependent on China (recent crackdown on gifts / corruption in the communist party weighted on RC sales). Although it is family-controlled, RC could be (friendly) buy out in a context of strong consolidation of the sector. Brown Forman was recently reported to study an offer. (BF is also family owned and may share a similar culture as RC).

4) Accor (OTCPK:ACRFY): Sixth largest global hotel group operating hotels in all market segments. 80% of the business is in Europe and the group is almost absent from North America. It would be a perfect target for any US hotel group looking for a strong foothold in Europe (Hilton (NYSE:HLT), Marriott (NASDAQ:MAR), Starwood (NYSE:HOT)…). Everything will depend on the strategy of the main financial shareholder Colony Capital (+Eurazeo).

5) Nexans (OTC:NEXNY): Manufactures metal cables for the energy and telecom sectors. Some funds (including Amber) are currently fighting to change the CEO. At the same time, its Italian competitor Prysmian (OTCPK:PRYMY) has been quoted mentioning the possibility of a merger with Nexans…

6) Maurel & Prom (OTC:MRELF): Is an oil-producer/prospector, positioned as a niche player on onshore fields. M & P has long shaped up as a company lacking the necessary critical size in a market where access to funding is still tricky. Integration into a large group or a marriage with a company of similar size will be eased in coming months by prolonged visibility on Gabonese licenses and the arrival at maturity of financing instruments dilutive on the capital. Lastly, 70 years old CEO has declared several times 'M & P is bound to be acquired or forge ties with a partner'.

French gems

7) Legrand (OTCPK:LGRVF): Is a specialist and leader of electrical and digital infrastructure equipment for the building sector. In the development of domotics / connectivity and automation at home, we feel Legrand expertise could be of strong interest for high-tech players, following Nest acquisition by Google (NASDAQ:GOOG). Legrand could have ranked also in the Usual Suspect category as Schneider Electric (OTCPK:SBGSY) made a successful bid on Legrand in the early 2000s, but did not get the green light of European antitrust authorities.

8) Edenred (OTC:EDNMY): Is the world leader in service vouchers and is a spin-off of Accor 4 years back. Its business model makes it a genuine cash cow and would make it a perfect target for a PE fund (actual leverage is low at about 1x Net debt / EBITDA).

9) Eurotunnel (OTCPK:GRPTY): Is operating the Channel tunnel between France and UK. It is the longest concession period in Europe (2086). Eurotunnel should be an M&A target from investors such as infrastructure funds, pension funds, sovereign funds. Currently, Goldman Sachs is the main shareholder with 16% of the shares.

10) Ingenico (OTCPK:INGIY): Is supplier of electronic payment terminals and a provider of services (installation, maintenance, consultancy and automated payment systems integration), software (integrated automated payment systems, fleet management) and transaction services. It is typically the case where the French state, in the past (N. Sarkozy in 2010), prevent a bid from a US company (Danaher (NYSE:DHR)), on claims of national security. Danaher could still be interested, so as Sage (OTCPK:SGPYY) or eBay (NASDAQ:EBAY). (Safran (OTCPK:SAFRY), company controlled by the French state, sold bulk of its participation in Ingenico since 2010, thus diminishing the potential influence of the State).

Editor's Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

Source: Corporate France Up For Sale: Who's Next After Alstom?