PARIS -- After an unprecedented surge in acquisitions of U.S. companies over the last five years, leading French firms have started tightening the purse strings, as returns on their investments have come in more slowly than expected.
The slender profits are due in part to the recession in the United States, which delivered growth rates far short of those projected for 1989 and 1990. As the overall effects of the recession reach the European continent, fewer companies here will likely feel confident enough to launch major acquisitions overseas.
In addition, French companies that acquired U.S. firms are typically looking at several years' adjustment, during which they work to mesh cultural differences, manufacturing styles and supply channels with their American acquisitions.
"Most companies in France don't feel U.S. companies can be acquired on the cheap," said Ron Freeman, managing director of Salomon Brothers in London. "They won't show returns for their first few years, and shareholders want to see returns right away."
Some French companies, in their eagerness to gain a place in the vast American market, appear ready to take serious risks.
Just a few months after the Manufacture Francaise des Pneumatiques Michelin, the French tire company, bought Uniroyal-Goodrich for $1.5 billion in September 1989, the company laid off 2,000 workers at its plant in south-central Clermont-Ferrand. In 1989 and the first half of 1990 -- just before Renault Vehicules Industriel bought Mack Truck Inc. -- the U.S. truck maker lost $282.6 million.
The recent interest in expanding through foreign acquisitions reverses a long tradition among French companies of sticking to the domestic market, where government subsidies and other protective measures provided little incentive for venturing into the world market.
In addition, French companies were reportedly busy paying off their own debts between 1975 and 1985 and began serious overseas investments only around 1986.
"We've accumulated a considerable delay," Michel Pebereau, president of the Credit Commercial de France bank, was quoted as saying in the French financial magazine, the New Economist.
"The French didn't really have the mentality for foreign acquisitions," said Jean-Pierre Tirouflet, financial director at Rhone-Poulenc S.A. "They made absolutely enormous errors in management at first."
But starting around 1986, the traditional French insularity in business matters began to crumble and a number of major acquisitions gave French companies solid standing in the U.S. market. Leading the way were Rhone-Poulenc, the French chemical giant, with its $1.7 billion buyout of the pharmaceutical firm Rorer Inc., based near Philadelphia, and the packaging company Pechiney, with its $1.3 billion acquisition of American Can Co.
More and more, French business adopted the view that gaining a foothold in the lucrative U.S. market was worthwhile, even if it meant several years of little or no profit.
In 1986, the French spent only 36 billion francs on foreign operations, or less than $4 billion at the 1986 exchange rate. In 1988, they spent 70 billion francs overseas, or about $11 billion, with almost two-thirds going to the United States. In the first nine months of 1990 alone, French spending overseas surpassed 105 billion francs, or $17.5 billion at last year's exchange rate.
For the Compagnie des Machines Bull, manufacturers of software, hardware and integrated information systems, the U.S. market offered access to advanced technology and a strong foothold in the microcomputer industry.
Patrick Marx, director of international press relations for Bull, said the French company's $511 million acquisition of Zenith Data Systems outside Chicago catapulted Bull's share of the U.S. market from virtually zero to 20 percent.
But Mr. Marx said that Bull would likely not break even this year on its buyout of Zenith. "The company's goal is to return to profitability by the end of 1991," he said.
Mr. Marx called 1990 "a tough year," with the mainframe market's 6 percent growth rate last year falling short of the 7.9 percent predicted.
The French companies that have already made American acquisitions are not, for the moment, hungry for more, preferring to absorb their U.S. operations and wait for better times.
Aside from the current, inconclusive attempts by Groupe Schneider S.A. to buy out Square D, an U.S. manufacturer of circuit breakers, French firms appear to be watching the American economy for signs of revival. They are also keeping an eye on the French mavericks who have already ventured into the U.S. market to see how they fare.
The cautious mood could change with the end of the Persian Gulf war. Analysts here suggest that foreign interest in American companies may pick up again if it appears that the current rally in world stock markets signals the start of a deeper economic upswing and not just euphoria over the American-led coalition's military success.
"We're ready to bear the American recession because we're convinced that it's necessary to have acquisitions in the U.S.A. to take our place on the world market," said Mr. Tirouflet of Rhone-Poulenc. "We'll just have to hunker down."