The France Deals Pulse is a regular column looking at the hottest dealmaking trends in French capital markets.

The potential sale of France’s main paracetamol producer is causing politicians a migraine as the government weighs up protecting French jobs and operations against maintaining its reputation as a top foreign investment destination.

Last week, Sanofi [EPA:SAN] announced talks with a consortium led by CD&R for the sale of a 50% stake in its consumer healthcare division Opella, valued at around EUR 15bn.

The news of exclusivity talks with the US sponsor has immediately revived the country’s favourite political game of assessing whether an M&A transaction risks France’s economic interests.

Pressure is growing on the government to block the deal and allegedly preserve French healthcare sovereignty.

Before the government intervention, a sale seemed well on track with no massive headaches on expected obligations on jobs and production site protections as part of the French Foreign Direct Investment (FDI) screening procedure, according to a source familiar with the matter.

Prospective buyers are often briefed in advance about potential FDI obligations which are often the same: keep headquarters and decision centres in France, maintain staff levels for a period and preserve production sites for a time, the source said, confirmed by an FDI lawyer, and a source at France’s Ministry of Economy and Finance.

But the government needs more clarity.

The government is seeking a tripartite agreement with Sanofi and CD&R to make sure these benchmark obligations, yet to be fully negotiated, are upheld for an undisclosed period, the ministry source explained.

This source added that prospective buyers usually submit plans for FDI screening as exclusive talks start, without confirming whether CD&R had already submitted its FDI filing.

Political headache

The government’s sudden intervention on the Opella sale, after exclusive sale talks were reported last week, has triggered a negative cycle of media attention which could have been avoided, several French M&A practitioners suggested.

The Ministry of Economy and Finance used an initial statement to remind both parties of FDI obligations, while acknowledging CD&R’s investment would be positive for Opella production sites in France.

This was followed by a rushed visit to Opella’s main production site in Lisieux, France by Arnaud Armand, minister for economy and finance, and industry minister Marc Ferracci.

The ministers made clear on the trip that “the proposed sale does not call into question either the production in France of Doliprane or the other essential medicines produced by Opella in France, or the supply of these medicines to the market.”

The visit and the statement led some to question the viability of the deal.

After the visit there were then reports that the French state was considering taking a stake in Opella to protect jobs and production, either through an equity slice or a golden share.

A source at the French ministry of economy explained that a government stake purchase, perhaps through French state-controlled investment bank Bpifrance was not being ruled out.

This source did not want to comment on “premature speculation” about the acquisition of a golden share, which would require state approval for all major decisions affecting French industrial and healthcare sovereignty.

Sanofi told this news service that it does not wish to comment on anyone’s statements, and that the choice to initiate talks with CD&R was partly taken because “it provides sufficient solidity and financial guarantees to maintain and develop Opella’s activities in France and around the world.”

“CD&R has largely demonstrated its ability to develop growth and employment in companies in the various industries in which the fund has taken investments in recent years, while respecting employees, the environment and consumers,” the company added.

Revived IPO speculation

The launch of a dual–track process for the spin-off of Opella, expected for almost a year, was confirmed this June, with no clear decision on whether the sale was favoured over the listing.

The shock of perilous summer snap elections in France the following month made the sale option more likely as the market volatility soared.

But, given the fiery political reaction, an IPO route may be a better way forward, given it does not require foreign direct investment (FDI) screening, the source familiar with the situation explained.

Earlier this month, this news service reported that increasing listed peer valuations meant that a listing alternative in the dual-track process presented a more compelling value than a possible sale valuation and gave Sanofi leverage to push bidders to raise offers.

Sanofi noted the most favoured option for the company is to sell Opella to CD&R but confirmed that it had not “definitively abandoned” the idea of an IPO, leaving the door ajar for a listing should talks fail.

The French economy ministry did not want to comment beyond previous ministers’ statements.