Predatory moves pose threat to old ways of doing business

When Mr Michel Pebereau, the chief executive of the Banque Nationale de Paris, announced his still unresolved hostile take-over bid against France's two other biggest banks on the evening of March 9th, there was a loud and still resounding gasp; Mr Pebereau's behaviour was so "un-French".

"The existing modus operandi is that one doesn't do hostiles," Mr Paul Gibbs, a vice-president at J P Morgan & Co, said. "It's seen as a nasty American or a nasty British thing to do."

Sure enough, Le Monde took less than a day to find "something British" in Mr Pebereau's "reserved character". (For reserved, read treacherous.)

The French financial establishment was in for more shocks.

While the Societe Generale and Paribas refused to talk to Mr Pebereau, the country's biggest luxury conglomerate, Bernard Arnault's Louis Vuitton-Moet Hennessy or LVMH, was pursuing its own hostile take-over of Italian firm Gucci.

Then, on the morning of March 19th, LVMH woke up to the news that another French group, Francois Pinault's PPR, had seized 40 per cent of Gucci, as well as the Sanofi group, also coveted by LVMH. The two protagonists, Mr Arnault and Mr Pinault, are both self-made billionaires in the Anglo-Saxon mould.

Since June 1997, Prime Minister Lionel Jospin's left-wing government has privatised more state-owned companies faster than anyone before him, including France Telecom which he had sworn to keep public. The shrinking French public sector - combined with the spate of mega-mergers and hostile take-overs - have led to a flood of newspaper articles about "the new French capitalism" and an "Anglo-Saxon style France".

Many explanations have been offered for what is billed as the most profound change in the French economy since the second World War: deregulation imposed by the European Commission; globalisation and the tougher competition that goes with it; slow economic growth in Europe, which forces companies to push harder for profits; the advent of the euro; more numerous, more demanding (and often foreign) shareholders on the Paris Bourse.

The paternalistic, protectionist and state-run system that has dominated France since 1945 emphasised grandeur and national independence. It produced French nuclear weapons, the TGV train, Airbus and the Ariane satellite launcher. In 1981, President Francois Mitterrand horrified the business community by nationalising all the big French banks. It has taken nearly two decades to unravel that - the last big state-owned bank, the Credit Lyonnais, will be privatised this year.

France has moved towards market capitalism in fits and starts since the right first returned to power in 1986. But for a decade, the state kept a grip on business through a complex system of noyaux durs - core industrial shareholders - and participations croisees , whereby large French companies owned substantial amounts of each other. These two very French phenomena began to unwind only towards the mid-1990s.

Yet appearances can be deceiving. In a study of hostile take-overs in Europe since 1990, Paul Gibbs of J P Morgan found only 12 attempts had succeeded in France, compared to 154 in Britain during the same period. "Do you call this capitalism?" he asks. "Or is it an experiment in their back garden?"

The power of pension funds in the US and Britain is a major force behind take-overs in both countries. In France, they simply don't exist - a fact lamented by Dominique Strauss-Kahn, the French Finance Minister. The absence of pension funds "deprives our companies of an essential source of financing", he has said.

US and British pension funds, always eager to spread risk, have invested heavily in France, raising the percentage of non-French shareholders in the Paris Bourse from 20 per cent in 1996 to 36 per cent last year.

But with few exceptions, take-overs and mergers in France are Franco-French operations. Potential foreign predators are put off by the amount of media attention, and experience shows that foreign bidders have only half the chances of success of a domestic bidder. SG-Paribas may look abroad for a "white knight" to save it from BNP. If this happens, it will be a first in French finance.

There is also a fundamental contradiction between France's pretensions to market capitalism and the stultifying regulations that dictate working hours, wages, hiring and firing. Flexibility in the US and UK labour markets is seen here as capitalisme sauvage.

France's new boardroom capitalists may be on a collision course with le capitalisme de papa. Hostile bidders who lure shareholders with high premiums must then raise profits proportionately to preserve value for shareholders. If the BNP succeeds in its bid but cannot close branches or fire staff in the French retail banking sector, its profits will fall. Either way, it means a crisis for management, employees, trade unions - and the French government.