France wins EU merger law approval

BY Richard Summerfield  

The French government has won the approval of the EU for a controversial new law which grants the government more power to block takeovers of French companies in strategic industries.

The decision, announced by French economy minister Arnaud Montebourg, was based around the government’s move to extend its control over mergers and acquisitions in industries which have been deemed key to France's national interests. The new law was inspired predominantly by the deal that saw General Electric Co (GE) successfully acquire the energy assets of French group Alstom.

“The European Commission in recent days notified the French government of its approval of the decree as perfectly in line with European treaties,” said Mr Montebourg in a conference speech in France. “It was used in the GE-Alstom case. It will be used again in certain sensitive sectors such as water, health, national defence, gaming, transport, energy and telecommunications" he added.

Although the European Commission, the EU’s executive body, has approved the law, it is not willing to provide the French government with carte blanche to veto deals in the future. Indeed, the Commission has announced that it intends to closely monitor the situation in the months ahead. A spokeswoman for Europe’s financial services chief Michel Barnier wrote "We recall restrictions on free movement of capital can be justified if the objective pursued is one of public policy and public security. Any action taken to restrict free movement needs to be proportionate and serve the public interest. We will closely monitor any use of the law, i.e. systematically monitor any application of the investment screening legislation, and check in particular that it is not used to achieve purely economic objectives."

Following a protracted negotiation period, GE’s takeover of Alstom was finally approved at the end of June. The company was forced to overcome a number of hurdles in order to finally get the deal ratified. Most notably, the $17bn takeover of Alstom’s energy assets was only approved after one of Alstom’s existing shareholders, Bouygues, agreed to sell a stake in the firm to the French government. As per the government’s terms, Bouygues will be required to sell as much as 20 percent of Alstom to the state. GE beat out competition from Siemens AG and Mitsubishi Heavy Industries, which tabled a rival bid for Alstom’s assets.

News: France says won EU backing on takeovers law, EU says will monitor

Assessing MiFID’s facelift

MiFID I was largely successful in matching its original ambitions of moving towards a single European market in financial services, and removing the monopoly of regulated markets. However, the Directive fell down in a number of areas. Given the extended scope of products and activities covered by MiFID II, it is expected to have a significant impact on the European market in the years ahead.

FW moderates a discussion on MiFID II between Michael Thomas at Hogan Lovells, Kara Cauter at KPMG and Marius Floca at RBS.

TalkingPoint: Analysis of MiFID II

Cyber risks still overlooked in dealmaking

Cybersecurity is now one of the most pressing concerns among the spectrum of risks arising in the M&A process. Intellectual property, operational efficiency, and financial controls are all at stake when companies embark upon a transaction without properly managing this risk. Recent large-scale attacks and the notoriety they have gained may be increasing awareness of these issues, but understanding how best to address them requires expertise that may be lacking among dealmakers.

FW moderates a discussion on cyber-security risks in M&A between Adam Pang at Merrill DataSite, David Stanton at Pillsbury Winthrop Shaw Pittman LLP and Timothy J. Nagle at Reed Smith LLP.

TalkingPoint: Managing cyber-security risks in M&A

Global M&A hits new high in H1

BY Matt Atkins

The value of global M&A rose 3 percent in H1 2014, hitting $2.03 trillion according to information collected by M&A research firm Zephyr. Volume slipped, however, dropping from 41,496 deals in H2 2013 to 35,429.

In the first six months of the year, deal value increased across most continents. The largest increase was in the Middle East, where M&A value more than doubled from $3.54bn in H2 2013 to $7.13bn. Western Europe increased 19 percent from $464bn to $553bn over the same period while M&A recorded for North America improved marginally, hitting approximately $770bn. Asia-Pacific advanced from $476.75bn to $478.23bn. Of all regions examined, Central and Eastern Europe was the only one to see a decline. Slipping from $124.10bn in H2 2013, to $68.72bn. H1 value in the region was the lowest seen since 2012.

While deal value rose generally, volume declined across the board, with the exception of the US. “M&A value has increased in most regions in H1 2014, with global value reaching its highest level for a number of years," said Zephyr director, Lisa Wright. "The positive result is in stark contrast to global volume, which has hit its lowest point in the last nine periods under review. This suggests that deal considerations are increasing, with acquirers willing to spend more in order to ensure they get the best targets."

The rebound has spread across most sectors except financials, where tougher regulation has suppressed appetite. However, the healthcare sector has been the busiest to date, with deals tripling in value to $317.34bn, according to Thomson Reuters data.

A growing trend in the healthcare sector has been inversions by US firms – allowing them to domicile in a country with a lower corporate tax rate. US medical device maker Medtronic Inc struck a $42.9bn deal for Ireland-based rival Covidien Plc in June, in one of the largest attempted inversions. Pfizer's attempted takeover of AstraZeneca, and AbbVie's offer for Shire, would have seen both firms cut their tax bills while also allowing them to access the cash held offshore without paying US taxes.

The second-busiest sector for dealmaking has been media and entertainment, with deal volumes almost tripling to $220.7bn. This is the largely the result of two mega mergers – Comcast Corp's $45.2bn bid for Time Warner Cable and AT&T Inc's proposed $48.5bn acquisition of DirecTV.

Report: Zephyr Half Year M&A Report: Global, H1 2014

BNP humbled by US penalties

BY Matt Atkins

The long arm of the law caught up with BNP Paribas (BNPP) this week, as it was slapped with a $9bn fine by US authorities.

On 30 June, France's largest bank pleaded guilty to criminal charges related to allegations it breached US sanction laws between 2004 and 2012. The heavy financial penalty is the least of BNPP's worries, however – the bank has also been banned for 12 months from conducting certain US dollar transactions, a vital part of its global business. The temporary ban is expected to trigger a client exodus, and how the bank will staunch the flow is unclear.

Such strict penalties were warranted, say authorities, by BNPP's persistent violations, which continued even after US officials warned the bank of its obligations. BNPP failed to heed calls to police illicit money flows which saw it act as a "central bank" for the Sudan – a hotbed of militant activity and human rights abuses.

The bank admitted to establishing elaborate payment structures for its Sudanese clients, routing transactions through satellite banks to disguise their origin. Internal bank memos showed that BNP officials were aware of the humanitarian crisis in Sudan and the ties of its government with al Qaeda founder Osama bin Laden, but found the commercial draw of the country too great a temptation to resist.

The French bank also evaded sanctions against entities in Iran and Cuba, stripping information from wire transfers so they could pass through the US system without raising suspicion. BNPP's illicit Iranian transactions were carried out on behalf of its clients, including a petroleum firm based in Dubai that was a front for an Iranian petroleum company.

The penalties laid on the French financial institution are far grater than those faced by Credit Suisse earlier in the year, when it admitted aiding US clients evade taxes. "We deeply regret the past misconduct that led to this settlement," said BNP Chief Executive Officer Jean-Laurent Bonnafe. "We have announced today a comprehensive plan to strengthen our internal controls and processes."

No individuals at the bank have yet been charged. However, US authorities have not closed the case and BNPP can expect more fallout in the coming days and weeks.

News: BNP Paribas to pay $9bn to settle sanctions violations