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12 October 2023

France vetoes American takeover of two 'sensitive' nuclear suppliers

Jean-Michel Bezat

Two small companies, based in Mennecy (Essonne, northern France) and Lyon, have received a great deal of attention from the French Finance Ministry and the Defense Ministry in recent months. And with good reason: Segault (80 employees) and Velan SAS (280 employees) supply valves for the boiler rooms of Naval Group's nuclear submarines and EDF's (the state-owned electricity company) nuclear power plants.

These SMEs are subsidiaries of Canadian company Velan, currently in the process of being acquired by the Texas-based Flowserve Corporation. The Finance Ministry vetoed on Friday, October 6, the takeover of Segault by the American industrial machinery giant. Following the veto, Flowserve announced it would abandon its plans to take over Velan worldwide.

Segault was subject to the "foreign investment screening procedures." This is automatic when a non-European industrialist or financier wishes to acquire at least 10% of the voting rights of a listed French company (or 25% of the voting rights of an unlisted company) operating in a strategic sector. The French government deemed that commitments made by the multinational Flowserve were insufficient to eliminate all risks.

Tighter controls on foreign investment

The affair has taken a political turn, especially on the right and far right. In May, in response to a question from a Rassemblement National (far right) MP, Minister of Armed Forces Sébastien Lecornu warned that the French state would oppose "loss of operational control" of the company. Two months earlier, Arnaud Montebourg, former minister of industrial renewal (2012-2014) during François Hollande's presidential term, wrote to Finance Minister Bruno Le Maire, calling for the SME to remain in the French fold.

The government and companies in the defense industrial and technological base know that it's risky to have American suppliers. Washington can demand information from an American company or its foreign subsidiaries without judicial authorization. The International Traffic in Arms Regulations (ITAR) instrument governs exports of military equipment incorporating components, sub-assemblies, or software of American origin or under American license. In addition, the Department of Energy can impose its own regulations and hinder the export of French nuclear technologies. The takeover is hard to accept when you consider that Velan SAS equips EDF's 56 French reactors and three-quarters of the world's power plants.

Le Maire had already opposed the takeover of optronics specialist – and armed forces supplier – Photonis, by California-based Teledyne, in 2020. This company was eventually acquired by French investment firm HLD. Conversely, in January, the Finance Ministry and Defense Procurement Agency gave the green light to American company Heico's takeover of Exxelia (2,100 employees), but with a "golden share" retaining French oversight rights. Exxelia manufactures electronic components, notably for the Rafale and F-35 aircraft.

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