Shall We Dance?

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Until fairly recently, the french regarded globalization as more of a threat than an opportunity—a dog-eat-dog consolidation process that might unleash free-market pit bulls from abroad amid the nation's cosseted economic poodles. That view has clearly changed, however, with French companies now leading the pack of global businesses searching for foreign partners—driven by the impeccable logic that it is preferable to eat than to be eaten.

Last week offered new examples of this whetted French appetite for foreign acquisitions, with utility and communications giant Vivendi formally announcing its intention to take over entertainment and drinks conglomerate Seagram Co. of Canada, and advertising group Publicis' purchase of London-based Saatchi & Saatchi. Both moves demonstrated French refusal to stand on the sidelines in swiftly consolidating business sectors.

The $34 billion merger of Seagram's Universal Studios and Universal Music businesses with Vivendi's telephone and Internet activities, and Canal Plus' pay-TV and film production units, transforms Vivendi from a major European communication player to the world's second-largest group behind AOL-Time Warner. The $1.9 billion Saatchi deal, meanwhile, makes Publicis the world's fifth-largest ad group with vastly enhanced U.S. revenues—and follows U.S. acquisitions earlier this year by French rival Havas Advertising.

Last week's moves were the latest in a continuing flurry of French takeover and merger activity both at home and abroad that was valued at nearly $300 billion in 1999 alone. Carmaker Renault last year enhanced its market and geographical position by securing a 37% stake in Nissan of Japan, worth $5.4 billion. It followed that up in April by taking a 70% share of Korea's financially troubled Samsung Motors for $559 million. French oil group Total, meanwhile, wed Belgian fiancee Petrofina for a price of nearly $12 billion in 1998, then promptly turned the marriage into a menage à trois last year by acquiring French competitor Elf Aquitaine in a $54 billion hostile takeover.

Similarly, AXA—the world's largest insurance group—reinforced its position with the 1999 purchases of U.K.-based Guardian Royal Exchange and Nippon Dantai. The French have remained active this year with Alcatel's $7.1 billion deal for Canadian telcom Newbridge Networks, and France Telecom's $40.5 billion purchase of U.K. mobile phone company Orange in May.

"Europe as a whole, and France in particular, was slow to start the acqui-sition and merger process," says Hughes Doumenc, head of equity research at the Wargny brokerage firm in Paris, "and we're now seeing many French sectors and companies marching double-time." Paul Horne, European equity market economist for Salomon Smith Barney in London, agrees: "French companies have been very aggressive and well-financed expansionists the last few years. They've not only led the way in the number of such operations, but also in terms of value created by them."

Such cross-border merger mania typically works both ways, but thus far French firms have largely rebuffed alien advances. Critics credit France's ability to eat foreign corporate cake while preserving its beloved business baguettes to the practice of cross-shareholding arrangements and managerial partnerships between French groups that discourage foreign suitors with the threat of closed ranks and costly, destabilizing takeover battles. The nation's record of government interference in private business is also a deterrent. Last July, for example, the heavy hand of the state was evident during the melee set off by Banque Nationale de Paris' hostile bid for Paribas after Societe Generale's friendly merger proposition. The interference made the stock market bellow and subverted overdue consolidation in France's banking sector.

Horne also notes that some French businesses benefit from France's "resistance to European Union rules to deregulate certain activities, and allow entry to foreign competitors. You have to ask why it is that a lot of electric and rail service in southeast England is supplied by French firms, when those activities remain closed [to foreigners] in France."

Doumenc agrees that France still has some work to do, but thinks that the country's reputation for protectionism and aversion to foreign business penetration is exaggerated. Perhaps. But consolidation is a two-way street. The challenge for some French companies will be to remain enthusiastic about globalization when it's the foreign dogs who are having their day.