PARIS--The French government is deepening its foray into
shareholder activism.
On Friday, the government announced it had begun raising its
stake in Air France-KLM to nearly 18% from 16% to ensure Paris has
veto power at the Franco-Dutch carrier's next shareholder
meeting.
The maneuver marks the second time in the space of a month that
Paris has purchased shares to get its way in the boardroom.
In early April, Economy Minister Emmanuel Macron engineered a
EUR1.2 billion ($1.35 billion) acquisition of shares in Renault SA
to guarantee the state could defeat a resolution--backed by the
auto maker's board--to exempt the firm from the Florange Law, a new
measure that grants double voting rights to long-term shareholders,
including the government.
In announcing plans to purchase up to EUR45.9 million worth of
shares in Air France-KLM, the French government's goal is the same:
To ensure it can outvote any shareholders who challenge the
government's push to apply the Florange Law across France Inc.
"These double-voting rights are today already a reality for the
companies in which the state has a stake," France's Economy and
Finance Ministry said.
As in the case of Renault, Air France-KLM's board had proposed a
resolution to opt out of the Florange law because some investors
worried the French government was poised to acquire a
disproportionate amount of influence at the Franco-Dutch
carrier.
The board of Air France-KLM, however, didn't appear on Friday to
be gearing up for the kind of pitched battle that Carlos Ghosn, CEO
of Renault and Nissan Motor Co., waged against the government--and
lost.
"The board considers a stable and long-term ownership structure
useful to a company like Air France-KLM," the board said, noting
the cash-strapped firm in seeking a return to profitability.
The question of whether the government garners double voting
rights should be settled through "shareholder democracy" at the
carrier's general assembly meeting on May 21, the board said.
The government's shareholder activism puts a new spin on
dirigisme, or government control of the economy, that defined
post-World War II France. While previous economy ministers clamped
down on companies by threatening to block mergers or nationalize
their assets, Mr. Macron has taken a market-savvy approach.
At Renault, the government bought just enough shares to deprive
Mr. Ghosn of a two-thirds majority at a key shareholder meeting.
Mr. Macron also arranged options contracts to unwind the investment
in Renault, after the state secured its double-voting rights.
Renault's board said the action risked undermining the health of
its successful alliance with Nissan.
Paris' push to dramatically expand its influence at Air
France-KLM risks ruffling relations with the Dutch government.
Under the terms of Air France's 2004 merger with KLM, the Dutch
flagship carrier continued to enjoy a high degree of autonomy and
maintained separate headquarters and management board. As part of
the deal, the Dutch government retained a 6% stake in KLM and
handed the rest over to Air France-KLM on the condition the airline
would be independently run. The Dutch government also retained,
however, 50% of the voting rights.
The Dutch Finance Ministry didn't return phone calls seeking
comment.
French officials have kept their Dutch counterparts, as well as
the carrier's management, informed of the share purchase, according
to a spokeswoman at the Economy Ministry. "The transaction doesn't
call into question the merger," she said.
The government passed the Florange Law as an antidote to what
Paris perceived as a growing threat: Speculative foreign investors
buying French companies and hollowing out their industrial
operations. The measures grants double-voting rights to investors
that own shares for more than two years. A company can opt out of
the regulation, however, if two-thirds of its shareholders vote in
favor of the exemption.
Ellen Proper in Amsterdam contributed to this article.
Write to Stacy Meichtry at stacy.meichtry@wsj.com and Inti
Landauro at inti.landauro@wsj.com
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