French industrial policy. A smaller national champion

Lagardere and the battle between France and the European Union

AFTER more than 20 months of tortuous discussion, the immediate fate of at least one of France's national champions has been decided. Lagardere, a huge media to missiles group, will not become Europe's biggest book publisher - though it will remain France's largest publishing group by far. Under orders from European Union (EU) trustbusters, on May 28th Lagardere sold Editis - some 60% of Vivendi's former publishing arm, which it had bought in 2002 - to Wendel Investissement, an investment firm.

In the circumstances, Lagardere is not too unhappy about the deal. It sold Editis to a firm that, though pledging to spend €300m to become the “biggest French publisher,” in reality is unlikely to pose much competitive threat. Wendel, an investor in a ragbag of firms, has never dabbled in publishing, and lacks obvious options to expand its new acquisition. But the deal should helpfully cement good relations between Wendel's chairman, Ernest-Antoine Seilliere, who, as boss of the employers' association, is a force in French business, and Arnaud Lagardere, boss of the family firm. The firms expect Brussels to approve the deal within three weeks.

Lagardere would have liked to keep all of Vivendi's publishing assets, sold when the once-stellar firm fell to earth. Arnaud, son of the flamboyant Jean-Luc Lagardere who died unexpectedly last year, has big ambitions in the media. In the next 15 years he wants to stop making missiles (the firm owns 15% of EADS, the European Aerospace Defence and Space group) and turn Lagardere into one of the world's top three media groups. Jean-Luc built up the world's biggest magazine business, Hachette Filipacchi Medias, with over 200 titles ranging from Elle and Tele 7 Jours to Paris Match. He also hoped to create Europe's biggest book publisher by adding Vivendi Universal Publishing to Hachette Livre in the summer of 2002.

Naturally, the French government backed this grand plan, despite its monopolising consequences at home: it was needed to stop Le Robert's dictionaries and Plon, the publisher of de Gaulle's memoirs, falling into foreign hands. Jean-Jacques Aillagon, the culture minister at the time, said that potential (American) acquirers of Vivendi's publishing business were “asset-strippers” and “bone-pickers.”

But the trustbusters in Brussels said the purchase of the Vivendi assets could only go ahead if Mr Lagardere agreed to resell chunks of them as soon as possible. Months of discussions followed over how much was enough. Hachette Livre and Vivendi together controlled over half of French paperback sales, 80% of textbook sales and two-thirds of the country's book distribution. Not everyone in France supports its re-energised policy of creating national champions. Led by Gallimard, Le Seuil and La Martiniere, France's independent publishers lobbied Brussels to break the Vivendi assets into many smaller, more saleable components. Late last year they celebrated when Brussels refused Lagardere's initial offer to sell one-third of its purchase. Mario Monti, the EU's competition commissioner, only relented when Lagardere offered to sell two-thirds.

It took a further six months to agree on a buyer for 60% of the publishing group. Editis had many suitors, including Gallimard, one of France's most prestigious publishers, which is keen to expand into academic textbooks. Gallimard's paperback division, Folio, and Editis's Pocket complement each other. The two would have been a force in book distribution and a serious competitor to Hachette Livre. That would have delighted Brussels. But Gallimard did not have Wendel's ready cash. And it surely did not help that Antoine Gallimard, boss of Gallimard, had been one of the most outspoken opponents of Mr Lagardere's big buy.

To ensure real competition in French publishing, Lagardere should not have been allowed to buy any significant chunk of Vivendi's publishing assets. But France prefers national champions to the diversity of a functioning national market.

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