Update on Our Earlier Story:

France’s State Council, the highest court for administrative affairs, has found that the government’s plan to protect companies in strategic sectors from foreign takeovers may not comply with EU law. According to the council, EU member states may not limit the free circulation of capital among the union unless a deal would disturb public order or security, meaning the government would not be able to protect all the 10 sectors it has identified as strategic. Furthermore, in sectors where the government could prove a risk to security, France could not limit a takeover from another EU member. It could only protect the company from takeover attempts coming from outside Europe.

It remains to be seen if yogurt proves to be a high security risk to France.

[from 09-14-05]

In a soon-to-be-published decree, raised by ministers after rumors of a PepsiCo Inc. bid for French food company Danone SA, the French government will gain a veto over takeovers in 10 industries deemed “sensitive to national security.”

Sectors on the list include some that most countries retain control, such as arms manufacturing and encryption but it also covers companies with activities in biotechnology, data security, casinos and antidote production — fueling concern that it could lead to a broader kind of protectionism. French Prime Minister Dominique de Villepin, in fact, coined the term “economic patriotism” for the reason for these moves and asked that pension funds, banks, and insurers direct their investments toward his list of “strategic” industries.

EU Internal Market Commissioner Charlie McCreevy told an economic forum in Italy he would “vigorously pursue” breaches of EU law resulting from attempts to thwart foreign takeovers. France’s conservative government, however, is getting criticism even at home as French companies warned the government away from protectionist temptations, likening some of the recent rhetoric to the massive concrete border fortifications that failed to stop Germany’s World War II invasion.

The Finance Ministry said the decree will merely bring ”more precision” to the current law — which allows the state to block investments in any companies deemed sensitive to “public order, public safety or national defense interests.” Yes, we wouldn’t want yogurt falling into the wrong hands.

According to a government official, the draft legislation is not yet finalized and the veto would not apply to bids for entire pharmaceutical companies, for example, but to divisions making antidotes useful against bioterrorist attacks. I’m not quite sure how that would work in real life since companies are not always so neatly organized in discreet packets.

Last year, the government cited Aventis’ “strategic” vaccine operations as it fended off a planned offer from Switzerland’s Novartis AG and instead steering Aventis into an all-French merger with Sanofi-Synthelabo, forming Sanofi-Aventis SA. Novartis cited government intervention in its decision not to bid.

We’ll keep an eye on the progress on this initiative and our safety from Lactobacillus bulgaricus and Streptococcus thermophilus cultures everywhere. More available here.

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