Europe answers Wal-Mart threat
This week's merger deal of two top French retailers is the latest in astring.
When Wal-Mart stalks the land, even the bravest competitors blanch. Europe is now getting a taste of what many small American businesses have been up against for years.
With the discount giant on a European buying spree, two of France's biggest retailers sought safety in size this week, announcing a merger deal that would create the world's second-largest retail chain. The combined enterprise would boast 9,000 stores in 26 countries.
The move capped a frenetic summer of mergers and acquisitions that has shaken French capitalism to its roots. The leaders of France's traditionally staid and clubby business world are rousing themselves - in August, no less - to compete in the global marketplace. And there's an emerging acceptance that as members of the European Union, national governments are no longer in the business of protecting their own.
"The healthy thing is that the French have shown themselves willing to let this process move forward, even if they don't love it," says J. Paul Horne, an analyst in London with Salomon Smith Barney.
Nor is the merger-mania a purely French phenomenon: International takeover and merger deals in Europe were worth 67 percent more during the first half of this year than in the whole of 1998, according to the French business magazine L'Expansion.
The summer has been dominated by two major takeover bids - an attempt by the Banque Nationale de Paris (BNP) to snap up two rivals and create the biggest bank in the world, and a tussle between French oil giants Total-Fina and Elf, each of which is trying to take over the other.
"Many companies are concluding that they need to acquire a European dimension in order to remain competitive, and they are looking to build sufficient strength locally before looking at other moves on the European market," says Franois Charrire, managing partner for Europe of Andersen Consulting, a business consulting firm based in Chicago.
This week's merger between retail giants Carrefour and Promods - still to be approved by European Union regulators - would create a company with annual sales of more than $49 billion. This is dwarfed by Wal-Mart, whose sales topped $138 billion last year, but should prove large enough to ward off any hostile bid by the mammoth American firm, which recently bought retail chains in Germany and Britain.
The Carrefour-Promods deal has been welcomed in the French press for creating a French standard-bearer in the battle for international business - a battle perceived as being fought mainly against American rivals.
This nationalistic outlook still dominates government thinking in most European countries, despite the Jan. 1 launch of the euro, the single currency shared by 12 of the EU's 15 members, and the construction of a single market.
This became clear during BNP's hostile bid to take over rival banks Paribas and Socit Gnrale. The government did all it could to persuade the chairmen of the three banks to come to an amicable arrangement, but eventually failed. Socit Gnrale wriggled off the hook when a majority of its shareholders refused to pledge their shares to BNP.
Traditionalists, such as French Interior Minister Jean-Pierre Chevnement, were furious that the banking authorities should have put shareholder interests above "the national interest," which "clearly required the largest possible grouping to promote and defend our economic interests in the face of globalization" he said.
Prime Minister Lionel Jospin, however, while regretting that the three banks had not merged, pointed out that "in an economy that is no longer administered, [the state] cannot substitute itself for other actors."
The banking battle, says Mr. Horne, illustrates "the dichotomy of the old dirigiste system trying to adapt to the new competitiveness of the euro zone."
The French government has also stepped aside in the fight between Total-Fina and Elf over which firm will control the new group they will create, the fourth-largest oil company in the world. Considering that Elf was until recently a nationalized company, through which the French government carried out much of its clandestine foreign policy in Africa, this "hands-off" approach has startled many observers.
Meanwhile, cross-border mergers have also picked up in recent months. The French pharmaceuticals company Rhne-Poulenc and its German rival Hoechst joined forces in July to create a world-class life-sciences firm, Aventis. The leading French aluminum manufacturer, Pechiney, has teamed up with the Canadian Alcan and the Swiss Algroup to challenge the US firm Alcoa-Reynolds for the industry's top spot.
In sensitive sectors such as banking, however, cross-border takeovers have yet to start. Spain's largest bank, Banco Santander Central Hispano (BSCH), tried to take a 40 percent interest in a Portuguese bank earlier this year, but the Portuguese government vetoed the deal. Many analysts suspect the French government would also try to block any bid by BSCH to buy Socit Gnrale, though European law forbids such obstacles.
It is clear, though, that European business appetites have been whetted.
"All of this," says Mr. Charrire, "is triggered by the objective of becoming a major player on the European and worldwide markets."
(c) Copyright 1999. The Christian Science Publishing Society