FRANCE'S NUCLEAR VETOES

N - 10 October 2023 - France’s Economy Ministry has vetoed the acquisition of nuclear parts suppliers Segault and Velan SAS by US industrial machinery group Flowserve. The takeover became an issue earlier this year after Texas-based Flowserve – a major supplier of pumps, valves and other flow control products – announced plans in February to acquire Canada’s Velan – a manufacturer of industrial valves for the nuclear, cryogenic and defence markets. The $245m transaction was expected to close by the end of the second quarter.

This sparked a protest from former French Economy Minister Arnaud Montebourg who asked government to forbid the sale since it would also involve the sale of French nuclear component company Segault, which was owned by Velan. He warned that allowing Segault, which makes submarine valves, to be bought by an American company, would mean France would lose control of sensitive technology. Segault makes industrial valves for the Cherbourg-based Naval Group, which makes nuclear submarines, and also for the Charles-de-Galle aircraft carrier.

In a March letter to Finance Minister Bruno Le Maire, seen by AFP, Montebourg said the sale should be stopped in the interest of national security. He warned Le Maire that Segault’s technology could be passed on to a foreign government.

Montebourg said investment firm, Otium Capital, was ready to buy Segault if the Finance Ministry blocked its sale, and that his own company, Les Equipes du Made in France (The Made in France teams) was working with Otium to create an investment fund to maintain France’s industrial and agricultural sovereignty.

In May, French Defence Minister Sébastien Lecornu said he would veto the takeover of Segault by Flowserve. "The Defence Ministry will veto the loss of operational control over company Segault," he told French lawmakers. "I never announced it publicly, but it's done." Politico quoted an unnamed Ministry official as saying: “For us it's simple: we don't want Segault to be controlled by an American company." However, the final decision rests with the Economy Ministry.

In August the deadline for concluding the deal was extended as foreign investment screening procedures continued. Economy Minister Bruno Le Maire faced a difficult decision between maintaining France as an attractive investment destination and maintaining sovereignty over strategic technology, but finally decided to veto the takeover. Following the French veto, Flowserve announced it would abandon its plans to take over Velan worldwide. “We do not believe the decision aligns with the French government’s stated goal of encouraging foreign investment into France’s economy,” Flowserve said in a statement. Velan will resume operations as an independent business.

A French Economy Ministry official cited by Le Monde stressed that the nationality of the buyer was not the only criteria considered. “In a situation where security issues are substantial, we do not hesitate to block a transaction, even if it’s obviously bad news for any investor,” the official said. "We are following rules in a classic way and the Americans do the same on their side, but I don't think this is likely to increase tensions.” The French government deemed that commitments made by Flowserve were insufficient to eliminate all the risks.

Commenting on the veto, BNN Breaking noted: “Flowserve’s experience underscores the complex challenges that businesses face in today’s interconnected world. The rejection of the deal may prompt companies to reassess their strategies for international expansion, particularly in sectors that governments deem strategically important. The French government’s decision will also likely influence future negotiations between France and the US, potentially setting the stage for further discussions about cross-border investments and strategic autonomy.” 

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