New wave of privatisation of French State’s sale of non-strategic assets? A matter of symbols

On 5th July, the Minister of the Economy and Finances’ office announced that there will be some “sale of non-strategic stakes in the French State corporate asset portfolio” by the end of the summer. The objective is clear: to finance a fund for innovation with a €10 billion budget. With a portfolio of assets worth more than €100 billion, the French State is already examining the different possible opportunities.

If in January the French Court of Auditors emphasised a “degraded financial situation” of the French State’s corporate asset portfolio, market conditions have become much more favourable since the beginning of the year, most of the portfolio’s listed companies reaching record level valuation such as Air France or ADP. ADP is appropriately named at the top of possible sales, as well as Française des Jeux or La Poste, but nevertheless requires the intervention of the legislator. The withdrawal from Renault or PSA would lead to questions about the structure of the industry, without counting the social and political aspects related to these iconic companies. To ensure the success of these operations, Bercy will have to reconcile very different issues and subtly monitor the communication around these subjects. Here are some initial concerns to consider:

Choose the right words. In politics more than anywhere else, everything is about symbolism, and the elements of language are being prepared: goodbye “new wave of privatisations”, hello “arbitrations amongst the State’s corporate asset portfolio”. The early stages of this major communication operation are set. From now on, the State has to show that it is seeking to make the most of its portfolio, not just dedicate it to debt reduction, with the stated aim of financing innovation and future projects. In a nutshell, to contribute to the birth of the “start-up nation” that Emmanuel Macron dreams of for France.

Explain the proper use of proceeds. Like any financial transaction, convincing general public that the proceeds from the sale of these non-strategic stakes in corporate assets of the French State portfolio are being put to good use is crucial. The technological revolution is on the move! For the new government, which desires a radical transformation of the French economy, artificial intelligence and big data serve as levers favouring reindustrialisation and job creation. What better way to counter the arguments of those who denounce the gradual downgrading of the prerogatives of public power and authority over corporate financial matters.

Promote a visionary rather than a shareholder state. No one can deny that the role of public power can turn out to be necessary in certain strategic sectors and therefore justifies an equity control (French state stakes in groups such as Thalès, Safran or Areva clearly exemplify this). Conversely, the outsourcing of certain public service missions to private companies can open the way to new investments, allow more efficiency, let alone better user satisfaction. In this context, the French State has to put itself in a position of imposing a new doctrine: that of a State that no longer needs to maintain ownership control to exert influence. Bringing its support to an economic sector, as well as regulating it, is often much more efficient and a driver of innovation than a position of passive investor. The recent development of companies in the renewable energy or high-tech sector is a good example.

Do not overlook the importance of involving retail shareholders. Finally, to our eyes, it is imperative that the French State grant access to individual shareholders in these operations of reorganisation of capital, with the goal of assessing the appetite of the general public for this type of operation. In the past, the share offers of public companies such as EDF, Gaz de France or France Telecom have attracted a large and popular shareholding with the support of properly designed and structured marketing and publicity campaigns. Is this appetite still there? Whatever the response, the French State will have to give to the general public the opportunity to participate, or be accused of selling national jewels to institutional investors only, and even worse to foreign investors.

Because this matter relies as much on symbolism as on economics and finance, communication will play an essential role in these sale or privatisation operations. Their success will ultimately depend on how they are perceived by investors as well as by French citizens. It is up to the French State to take responsibility and communicate in a proactive manner!

Antoine Denry, Managing Director, Paris office

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