A decree by the French government allowing it to block foreign takeovers of firms in "strategic" sectors could hamper GE’s bid for Alstom.
Economy Minister Arnaud Montebourg has openly criticised the proposed $16.9bn deal for Alstom’s power and grid divisions over fears about the impact on French jobs and prestige and has instead advocated a European tie-up with Siemens, though the German firm’s CEO has said an offer would "not be forced on us".
And now any such acquisition would need the approval of the Economy Minister following the extension of an existing 2005 law relating to the defence and other industries to give the state increased powers to block foreign takeovers in the energy, water, transport, telecoms and health sectors.
"With this reform, France will have a clear and efficient legal framework comparable to that in a number of other open economies within and outside Europe," Montebourg said in a statement, following the publication of the decree in France’s state gazette Le Journal Officiel today.
"This new measure will of course be applied in a selective and proportionate manner, taking into account the merits of each situation," he said, adding the decree would take effect within 24 hours of publication.
Alstom was not immediately available for comment, but previously said it would give itself until the end of the month to review its options. GE said it noted the decree and would continue to discuss its plans with the French government.
"Our project is good for Alstom, for its employees and for France," it said in an emailed statement, aiming to "build a world leading business in the energy sector with four bases in France, preserving and creating jobs."
Cash-strapped Alstom, which builds France's high-speed trains as well as power turbines and associated equipment, was bailed out by the French government a decade ago and is seen by many in France as an embodiment of its engineering prowess.
"This decree will smooth the way for talks with GE and Siemens and allow our demands to get more of a hearing," a source close to Montebourg said. The veto will not necessarily be used, the source added, but is aimed at giving France a seat at the table.
The source said France did not seek to block all foreign investments but to ensure strategic sectors are protected in the nation's interest.
The move comes 10 days ahead of European Parliament elections in which President Francois Hollande's Socialists are expected to do badly due to a failure to tackle unemployment, and where the National Front – campaigning on a protectionist, anti-EU platform – is set to score big gains.
"With this new law, the risk that GE will reconsider its position increases, since additional concessions on a GE-Alstom deal will be sought by the French government to gain broader electorate support," Berenberg analysts said in a research note, adding it opened the door for an alternative deal with Siemens.