‘History has taught us that France does not progress through evolution. It responds to revolution and brutal change.’ So Jean-Francois Carminati, managing director of Morgen-Walke Europe, assesses the French corporate landscape in the aftermath of an extraordinary period of merger activity. ‘Because we’re in France, no-one could have predicted two or three years ago that BNP would have made that attack,’ he adds (see Investor Relations, November 1999). ‘But things have changed after the BNP and TotalFina deals – now it seems like anything is possible.’
This summer France got its brutal change. Marginally more subtle than the storming of the Bastille (but only just), a flurry of unprecedented M&A activity has shaken the traditionally conservative corporate community down to its foundations and back up again.
The business world has been treated to a spectacular six-month long soap opera this year. Banque Nationale de Paris attempted to gobble up rival banks Paribas and Societe Generale in a hostile double takeover bid. And although BNP emerged from the debacle without the scalp of SG, Paribas’s original suitor, the struggle sent shock waves through the country. The sheer audacity of it seems to have triggered – or at least spurred on – a profound change in the behavior and thinking of the entire country. Investor relations, mergers and acquisitions, corporate communication and regulation will never be the same again. Make no mistake: France is stunned.
Golden oldies
In the olden days, openly aggressive deals, for example, just were not the French way. So this new and ferocious approach has caught the eye and the imagination. ‘Hostile takeovers happen very rarely in France but this year we’ve had two,’ points out Pierre Zarifi, of Akka, a Paris-based agency.
‘It wasn’t as if French management was hesitating to launch hostile takeovers before,’ continues Zarifi. ‘But their bids would always be on foreign companies in order to globalize. Now the mentality of managers has changed. They’re certainly more aggressive and they’re ready to go for hostile takeovers in France. Companies now know they’ve nothing to fear.’
At the risk of harking back to a golden age that never existed, France has grown used to intimate business and close relationships. But there’s a sense now that French corporations are dismantling their ivory towers and embracing less incestuous methods. ‘The BNP deal has had a big effect on the landscape,’ believes Emmanuel Huynh of the recently created Paris investor relations agency NewCap. ‘It marks the end of the velvet world and of smooth relationships.’
‘Companies have been run by a very small community of people,’ states Carminati. ‘Higher management often come from the Ecole Nationale d’Administration. The chief executives of BNP, SG and the Bank of France came from there and UK and US fund managers find it strange. They saw those close links and thought, What are they doing? But BNP showed that it was not playing the friendship game anymore. Or at least that business would come first. That shows things are moving.’
‘It was very centralized,’ adds Frederic Lemaitre, president of Omnium & Associes. ‘That’s because many managers came from ENA. The change now is that companies realize they have to look at their business.’
A business culture built on confidential agreement, low-key, private transactions and ties of friendship is being cracked open. ‘The corporate world is changing,’ confirms Carminati. ‘People in the street are much more interested. Deals used to be done behind closed doors between a few people. But the BNP and TotalFina-Elf deals show they’re now on a public stage. Journalists, shareholders, employees (who are often shareholder themselves), unions – they’re all interested.’
Radical shift
With this in mind, a more noticeable by-product of this year’s M&A activity has been a radical shift in corporate communications. Anne Guimard, founder of Paris-based agency Fineo and formerly in IR at Saint Gobain and Alcatel, reckons that over-zealous companies should see a cautionary tale in this year’s merger activity. ‘We saw an unheard of amount of expansion in financial advertising,’ she argues. ‘There’s been a lot of money spent but the companies left the impression that they lacked consistency; that there’s no unity. They went too far in terms of volume, and didn’t show enough common sense.’
Huynh agrees that communications strategies during the BNP fight suffered from over-kill. ‘It was almost a battle with journalists,’ he says. ‘IROs were harassing journalists to try to convince them. Of course, it actually had the opposite effect and many have got themselves effectively blacklisted.’
And it wasn’t just the volume that was misjudged. Carminati considers that the protagonists relied too heavily on pressing home the figures. ‘Their financial image was good but their institutional image wasn’t. This is often more important. Companies make the mistake of thinking that share price and the market’s perception of them are all-important. That’s only partly right: the institutional image – which is aimed at the public – is at least as important, if not more. Because it’s the public who’ll decide at the end of the day.’
Laurent supports the view that the content of corporate communications has been shoddy. ‘In banking bids, financial communication has been reduced to a kind of propaganda,’ he states. ‘It’s often difficult to understand the message of financial advertising. Banks give out figures but their road maps are weak. In the BNP-SG conflict there was real over-communication and both sides were saying, We’ve got it. This meant they lost credibility.’
‘But lessons have been learned,’ according to Guimard. ‘Especially after the spending figures were publicized. It was clear that huge financial advertising sprees don’t help. But companies still need to go back to basics and place more emphasis on the need to educate people about the rationale behind their merger. The TotalFina-Elf merger was different. There was a consistency in what they were saying as well as an aesthetic consistency. But that deal was very different because the outcome was already known.’ Carminati is realistic, too. ‘When it’s all over, of course, it’s very easy to criticize,’ he concedes. ‘But I do think we will have a rebound in corporate communications.’
Affairs of state
This year’s deals have also been notable for the relative bashfulness or even impotence of the French government, a feature that – thanks to the high-profile nature of the transactions concerned – may render the state less significant in future corporate affairs. ‘The attitude of the French government has certainly changed,’ remarks Zarifi. ‘It used to make sure that deals were done confidentially because it would try to influence the battles and make sure it was satisfied. In the BNP deal the government wanted an agreement by all the parties but it failed.’
Guimard agrees that the government was muted during the struggle, pronouncing, ‘The government was happy to let market forces work,’ she observes. And perhaps government is better off out of it. Lemaitre is scathing about the state of the state: ‘Politicians just aren’t interested. Or they’re slow to understand the forces of economics and globalization. Look at the National Assembly: some of its discussions are really quite crazy. They seem to be in a war against companies because they no longer control them. Perhaps it’s just to prove to themselves they exist. I think it’s partly that that’s making companies more aggressive.’
‘What we saw in the Elf deal,’ observes Zarifi, ‘was the government becoming neutral and refusing to interfere. It had the power to force an arrangement but did nothing. That’s very interesting from an international perspective: a few years ago, the government could have forced BNP and Societe Generale to agree but the trend of globalization and privatization has altered things. Previously, foreign investors would say, Let’s not go into France. We’ll need the agreement of the government. Now France is seen as a potential target.’
The erosion of governmental influence should not be overstated, however. For a start it was its own regulatory authority – the CECEI, France’s credit control committee – that intervened in the banking merger. ‘The government still has importance,’ insists Carminati. ‘It had a big hand in both the BNP and TotalFina-Elf deals – it had a golden share in Elf, preventing it from soliciting a non-French bid. And look at the [Aerospatiale and Dasa] deal. The press photo was of the two chairmen standing next to Schroder and Jospin. That says a lot. But if it leads to value creation, who cares?’
Change, revolution, evolution, and development are rife. But look beyond the navel-gazing introspection and you’ll see the wider effects of the merger activity. The rest of the world is sitting up and taking notice too. ‘It’s not too often that you see a French takeover getting such huge media coverage,’ notes Zarifi. ‘And that will help to reduce international investors’ ignorance toward France. Because of the visibility of these mergers I think France will have a much bigger influence abroad. Already in the US, people are beginning to see France as a market that’s moving. The M&A activity this year has changed the view from the outside.’
So it’s not just France that relies on a revolution for a wake-up call.
