France's Heavy Corporate Hand Has Foreign Partners Chafing
(Bloomberg) -- The French state isn’t shy about flexing its muscles as a major shareholder in some of the country’s biggest companies. But suddenly foreign partners in two of its prized holdings are pushing back.
France was blindsided when the Dutch government took an almost 13 percent stake in Air France-KLM Group to gain parity with the French holding in the airline. Just three months earlier, Japan threw the auto alliance between Renault SA and Nissan Motor Co. into turmoil by arresting its chairman, Carlos Ghosn, on charges of financial wrongdoing without warning the French.
Rattled French officials say they should have been keeping closer tabs on their foreign corporate partners. The problem could arise again, as the government holds stakes in companies such as Airbus SE and PSA Group that have significant foreign ownership.
The blow-ups at Air France-KLM and Renault-Nissan follow long-simmering resentment over French dominance in their governance and management. “The French government has a huge stake, and therefore believes that it can do what it wants,” said Eric Chaney, an economic adviser to the Institut Montaigne in Paris. “That is less and less accepted by its partners.”
The dustup at Air France-KLM was surprising because it occurred just days after the group’s chief executive officer, Ben Smith, appeared to have quelled a revolt over governance at the Dutch arm. He agreed to keep KLM chief Pieter Elbers in his role following an outpouring of support from the carrier’s staff, but also secured a seat for himself on KLM’s supervisory board and won a more streamlined power structure.
Smith has made clear he wants the units to operate more like a single company, a move that has been met with resistance from KLM managers and unions who fear a concentration of power in Paris. The Dutch arm consistently delivers better profits than its French partner, which has struggled to cut costs in the face of crippling labor protests. For the Dutch state, purchasing the stake helped balance the lopsided relationship.
“There was simply too little influence from the state in KLM to be able to look after the Dutch public interest well, and to make a success of KLM,” Finance Minister Wopke Hoekstra told reporters late Tuesday.
In language unusual for such close allies, a French finance ministry official denounced the stealth purchase as value-destroying, unfriendly and duplicitous.
But the Dutch move could have come straight from the French dirigiste playbook. In 2015, France boosted its stake in Renault without warning Ghosn or the Japanese, thwarting Nissan’s efforts to increase its influence at the French carmaker.
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For now, the French state is likely to keep the upper hand in the tense partnership at Air France-KLM. It holds 14 percent, and as a long-term investor has extra rights that give it 23 percent of the vote. The Dutch, even with their newly acquired stake, won’t qualify for extra voting rights for two years.
KLM and Nissan were both viewed as relatively weak junior partners when they agreed to tie up with bigger French companies more than a decade ago. Yet while Nissan has now grown bigger than Renault, the French government—Renault’s most powerful shareholder—has held tight to the reins of power.
Renault holds a 43 percent voting stake in Nissan, while Nissan owns 15 percent of Renault with no voting rights. The French company’s CEO also leads the alliance as chairman.
The question now is whether similar rebellions could erupt elsewhere in France’s corporate portfolio. Disputes have flared over the years within Airbus, the aerospace giant in which France and Germany each hold a roughly 11 percent stake.
While top management jobs have been parceled out between French and Germans, the French have generally prevailed on big-ticket decisions: Airbus’s corporate headquarters and largest manufacturing operations are in France.
One company to watch: automaker PSA, where French state investment bank BPI and China’s Dongfeng Motor Co. each hold 12.2 percent. Dongfeng took its stake in 2014 as part of a plan to save the then-struggling French automaker and help it expand outside Europe. While Peugeot’s financial performance has improved, tensions have been rising because of its weak sales in the Chinese market, with the French and Chinese blaming each other for the problem.
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