In their report, French auditors concede that the nation's record of government shareholding in key defense industrial groups is not all bad. French companies that were once hidebound, uncompetitive, state-owned monopolies have learned to act on the global market and are now among the industry's top ranks by revenue.
But some of these same companies have resisted following the government's direction and have on occasion outmaneuvered the state's efforts to guide strategic interests. The most pertinent example is Dassault, a family-controlled company in which the government has gradually lost shareholding power over the past three decades, much of it through missteps in handling its equity interest.
Moreover, the state has inadvertently ceded to Dassault control of key strategic interests in Thales, in which the aircraft manufacturer holds a 26% stake; and in DCNS, in which Thales since early 2012 has held a 35% blocking minority.
As a result, the government has at times been unable to impose its will on Thales, and to a lesser degree DCNS, a position for which former Dassault Chief Executive Charles Edelstenne says the state has only itself to blame after privatizing certain strategic defense industries, only to regret some of the inevitable consequences.
“Privatization of these companies was a political act—a sovereign decision by those elected by the French people to make national policy,” Edelstenne says. “But once the state has decided to privatize these companies, it is difficult to criticize private shareholders for exercising rights the law gives them, and which the state has accepted through shareholder agreements.”
The audit agency also worries that Dassault and the French government have differences when it comes to the future direction of DCNS. While the state wants to keep control of the group, Dassault would prefer to see it run as a more industrial entity through Thales.
In its report, the audit agency attributes much of the state's diminished shareholder power to outmaneuvering on the part of defense companies, but in some cases it has been the result of administrative incompetence.
For example, following the 2005 merger of aerospace supplier Snecma and defense group Sagem, France retained a 30% voting share in the combined company, renamed Safran. Two years later, the French agency that manages state holdings failed to meet a regulatory deadline to disclose through France's stock market authority that it had breached a threshold for accumulating Safran shares, a reporting oversight that cost the state an opportunity to increase its holding to 40%.
Even if it remains the largest and only major shareholder, the state has limited powers over Safran, as was illustrated in 2012 when the company's board of directors was able to block a government-backed exchange of assets between Thales and Safran in the areas of optronics and avionics.