Date: Wed, 4 Jun 97 06:34:41 CDT
From: (Rich Winkel)
Subject: French Elections Threaten Privatization Drive
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** Topic: French Elections Threaten Privatization Drive **
** Written 9:07 PM Jun 3, 1997 by labornews in **
From: Institute for Global Communications <>
Subject: French Elections Threaten Privatization Drive

Impact of Left Victory on Privatizations Noted

By Nathalie Bensahel, Agnes Laurent, and Edourad Launet, Paris Liberation, 28 May 1997, pp. 20-21

Assumption: Sunday, 2000 hours.

The Left wins. Suddenly, for several tens of thousands of workers, Change your future is no longer just an election campaign slogan but a short-term program—whether for the best or the worse. France Telecom's flotation process is cancelled at the last minute, or at least frozen. The employees of Renault Vilvoorde [Belgium] find their fate is to be reconsidered. The incredible soap-opera of Thomson's privatization suddenly comes to an end, with a number of consequences for the fate of Dassault and Aerospatiale. Air France's thorny file is reopened.

For the employees of all these companies, much is at stake in Sunday's vote. These companies are facing very tight schedules, and the new government's decisions will have to be almost immediate. Let us look at things closer.

Renault: All hands at Vilvoorde Vote for Jospin

On 5 May, [Socialist Party (PS) First Secretary] Lionel Jospin promised to reconsider the closing-down of the Vilvoorde plant in the event of the Left winning the general elections. The government's representatives on the management board would require other measures to be contemplated, studied, and prepared, he explained. If he becomes the head of the new parliamentary majority next Sunday, Lionel Jospin will very quickly have to deal with this case. Indeed, the European Group Committee (EGC) meeting will be held on Tuesday, and the general meeting of Renault's shareholders will take place on 10 June.

The Renault case will be the first test for the Left.

The state, which holds a 47-percent share in the company, can dismiss the CEO or replace its representatives on the board, recalled Daniel Richter, a CFDT [French Workers Confederation] representative on the EGC. The Belgian trade unions are also hoping for a victory of the French Left, the only way to maintain the site operational, according to FGTB [Belgian General Workers Federation] leader Karel Gacoms. Last Monday, however, by voting (by an 86.7-percent majority) in favor of negotiations on a redundancies plan, Renault Vilvoorde's workers have helped toward a possible victory of the Right—and hence the confirmation of the plant's closure on 31 July.

France Telecom: Can the Government Do Without 30 to 50 Billion Francs?

The company's flotation was set to start on 5 June, with the shares being offered to the public. Yesterday, speaking on Europe 1, Lionel Jospin confirmed that the Socialists' position is not to privatize France Telecom. The PS' first secretary, who recently mentioned the possibility of consulting the workforce on the issue, explained that this consultation could only be one factor for making a decision, nothing more. It will not be France Telecom's personnel who will decide whether this major company will be privatized or remain under government control, he said.

In the event of the Left winning, France Telecom boss Michel Bon will not resign. He will go and explain to the government why flotation is necessary, sources close to him explained. It is not a political issue for us, but a technical one. Whatever the result of the vote, the only really important deadline is 1 January 1998 (date of the liberalization of the telecommunications sector—Liberation editor's note). We will then have to compete on an equal footing with our foreign competitors. However, we must take stock of the fact that all of the latter, with no exceptions, have opened up their capital to private investors.

Michel Bon is convinced that a new majority would not call into question his company's development (the operation planned by the Right would raise between 30 and 50 billion French francs [Fr]). At most, it would delay things for a few months. In fact, the debate on France Telecom might well become word-play. Can we speak of privatization when the Law on telecommunications (passed in July 1996) requires the state to hold a 51-percent minimum share in the company? The present majority and France Telecom's management prefer to speak of opening up the company's capital rather than of privatization. A change in government would therefore have the sole effect of returning to a more accurate terminology.

Thomson: Privatization Stopped, Problem Remains

The Socialist leaders were saying so long before the dissolution of parliament: If they were to win power, they would maintain this French electronics group in the government sector. For Lionel Jospin, privatizing a major player in the French defense electronics sector is out of the question since the privatization of one section of the military industry would pose a risk for national sovereignty. Over the past few weeks, the Left has not changed its position. However, it is those directly concerned by the issue who are astir, beginning with the Thomson group itself (comprising a defense electronics subsidiary, Thomson CSF, and a consumer electronics subsidiary, Thomson Multimedia). Our status as a nationalized company is not very favorable in international negotiations, a Thomson CSF manager explained. It is high time that we are allowed to develop fully, and for the group to be inscribed within a genuine reorganization of defense electronics.

It is beyond doubt that a new left-wing government will stop the process launched by [Prime Minister] Alain Juppe and will assert its wish to maintain state control over the defense industry. What will happen, then? If we are to believe the PS leaders' statements, the scheme proposed is the following: Initially, Thomson CSF would remain an independent company with state capital. Subsequently, the electronics group would join an aeronautical group made up by Dassault (currently a partner of Alcatel for the takeover of Thomson) and Aerospatiale, and whose capital would still be mainly state-held. An Aerospatiale-Dassault merger is therefore once again on the agenda. One problem remains: Serge Dassault must be convinced to merge without being privatized —- something to which the CEO is utterly opposed, and it is not easy to imagine how he could be forced to change his mind.

Last Monday the shares of all the companies in question experienced a very significant drop in their value. It looks as if the markets no longer believe at all in Thomson's privatization. Dassault Aviation could not be traded throughout Monday, and it reopened yesterday morning 9.6 percentage points lower.

The Dassault Electronique shares, which were withdrawn from trading throughout the morning, ended the session 6.9 percent lower, while Thomson CSF shares lost 9.6 percent. The same penalty was suffered by the candidates for the electronics group take-over. Lagardere shares lost almost 6 percent of their value on Monday, while yesterday Noel Forgeard, Matra's managing director, for the first time referred to the crux of the matter. If the Left wins power, we will try to explain to the new government that it is essential to privatize Thomson. Our agreements with the German group Dasa for satellites and missiles are still standing and, on these important grounds, we would be able to argue for the need to pursue the process already under way.

Lagardere, which has just lost a major ally following Alain Juppe's announced resignation (the prime minister had indicated his preference for Matra's offer in the first round of the group's privatization), is therefore now basing its strategy on the assumption of a change in the political scenario. The other candidate, Alcatel, which is Dassault's partner in this venture, suffered limited damage, experiencing a slight drop of 2.8 percent.

More specifically, the suspension of Thomson's privatization plans raises two immediate questions. The first concerns Thomson SA Chairman Marcel Roulet, who was appointed by the Juppe government to head the group—thus replacing Alain Gomez—for one specific purpose: privatization. If the project is shelved, Thomson's CEO, 64, will find himself in a more than embarrassing position. The same question mark hangs over Thomson Multimedia CEO Thierry Breton, who was also appointed by the government with the task of cleaning up TMM's accounts and finding buyers for the company.

Air France: Compulsory Privatization

On one side, Lionel Jospin, who is opposed in principle to privatizing the aviation company: He sees no good reason for doing so and he has already said an explained this to Air France's CEO. On the other side, of course, [Air France CEO] Christian Blanc, for whom moving the group into the private sector is now absolutely imperative. He is making a personal issue out of this. Only last week, at the height of the airline-pilot strike, Alain Juppe backed the CEO by stating to the newspaper Les Echos that he would demand privatization in the course of the year, if possible.

If the majority changes next week, Christian Blanc is determined to plea for privatization with the next government. First argument: In order to obtain the green light from the EU for the company's Fr20-billion recapitalization, the French state formally committed itself, in Brussels, to privatize Air France. Problem: No deadline was set. But, above all, the CEO will strive to prove that, faced with deregulation of the aerospace sector and international competition, Air France must place itself on an equal footing with its competitors. Furthermore, he will explain, for the umpteenth time, that only privatization can provide Air France's workforce with a viable plan and a meaningful future.

In short, Christian Blanc, who has not lost all hope of prevailing on this issue, will most probably try to strengthen his position by invoking PS Spokesman Francois Hollande statements, explaining that, as regards privatization, the companies operating in a competitive context—with the exception of the defense sector—will be examined on a case-by-case basis.