French CAC 40 firms ripe for LBO deals: banker

By Sudip Kar-Gupta

LONDON (Reuters) - Blue-chip French companies could provide ripe pickings for private equity funds despite the country's policy of defending firms from hostile bids, a leading Morgan Stanley investment banker said on Tuesday.

"Anything in the CAC-40 (French blue-chip stock market index) seems to be up for grabs at the moment," Simon Parry-Wingfield, co-head of leveraged finance at Morgan Stanley (MS.N: Quote, Profile, Research, Stock Buzz), told the Reuters Investment Banking Summit in London.

"I have to believe that next year, a CAC-40 (company) will go to a financial sponsor," he said.

Takeover interest on the CAC-40 was rekindled earlier this month after French entertainment and telecommunications company Vivendi (VIV.PA: Quote, Profile, Research, Stock Buzz) said it had ended talks with U.S. private equity firm Kohlberg Kravis Roberts (KKR) over a possible buyout.

People familiar with the matter told Reuters that KKR made a 40 billion euro ($51.3 billion) bid approach to Vivendi but eventually broke off talks, partly due to complications over French tax law.

France has traditionally been keen to avoid takeovers that result in large-scale job losses in the country.

The French government set up an economic patriotism policy in 2005 following rumors that U.S. soft drinks group Pepsico (PEP.N: Quote, Profile, Research, Stock Buzz) could bid for French food group Danone (DANO.PA: Quote, Profile, Research, Stock Buzz).

The ruling right-wing government has encouraged state-owned bank the Caisse des Depots (CDC) to buy stakes in French companies.

But Parry-Wingfield said a large-scale leveraged buyout involving a French company remained possible, despite likely political opposition ahead of French presidential elections in 2007.

"Where is the big jumbo deal? Right now, people will say France. There is enough focus in that sector; there are still opportunities out there," he said.

Parry-Wingfield said one of the attractions of a company such as Vivendi to a leveraged buyout firm was the diversified nature of its business, which would mean that a strong performance at one part of Vivendi could offset an underperformance at another part of the company.

France's economic patriotism policy has been criticized by other European countries, notably Italy after France engineered a merger between utilities Gaz de France GDF.PA and Suez (LYOE.PA: Quote, Profile, Research, Stock Buzz) to counter a possible bid by Italian utility Enel (ENEI.MI: Quote, Profile, Research, Stock Buzz) on Suez.

Another banker at the summit said that such a policy could end up hurting France's already sluggish economy, where the country's gross domestic product did not grow during the third quarter of the year compared with the second quarter.

"By not opening up to free markets, these guys are just going to stifle themselves," the banker said.