By Jean-Baptiste Vey and Benjamin Mallet
PARIS (Reuters) - The French government gave itself the power to block foreign corporate takeovers in "strategic" sectors on Thursday, throwing up a potential roadblock to General Electric's (N:GE) $16.9 billion (10.06 billion pounds)bid for Alstom's (PA:ALSO) energy assets.
The decree swiftly drew a warning against "protectionism" from the EU official in charge of competition, and was called a "bad idea" by French employers' group MEDEF. General Electric (GE) said it would pursue its talks for a deal with Alstom, but some analysts suggested rival suitor Siemens would now be encouraged.
The move extends a 2005 law on defence and other industries and gives the state much-increased powers to block foreign takeovers in the energy, water, transport, telecoms and health sectors - potentially affecting about a quarter of the companies in France's CAC-40 blue-chip equities index
Any such acquisition will now need the approval of the economy minister, the decree published in France's Official Journal said.
The current holder of the post Arnaud Montebourg - a self-described "economic patriot" - has criticised the proposed Alstom-GE deal for fear of the impact on French jobs and prestige, and advocated a tie-up with Siemens, which he says would create European champions in power and trainbuilding.
"With this reform, France will have a clear and efficient legal framework comparable to that in a number of other open economies within and outside Europe," he said in a statement.
"This new measure will of course be applied in a selective and proportionate manner, taking into account the merits of each situation," he said, adding the decree would take effect within 24 hours of publication.
"This is the end of laisser-faire," he told Le Monde in an interview published later.
Alstom has given itself until the end of the month to review its options. Both it and Siemens declined comment, while GE said it would continue to discuss its plans with the government.
"Our project is good for Alstom, for its employees and for France," GE said in an emailed statement, aiming to "build a world leading business in the energy sector with four bases in France, preserving and creating jobs."
However, Berenberg analysts said the decree opened the door for an alternative deal with Siemens. "With this new law, the risk that GE will reconsider its position increases," they said.
ECONOMIC PATRIOTISM
France already lags peers when it comes to foreigners buying its companies.
Only 37 percent of acquisitions of French companies have involved foreign acquirers since 2000, according to Thomson Reuters data. That compares with 55 percent for Britain and 59 percent Germany over the same period.
Among the major European economies, only Italy has fewer foreign takeovers. The United States, with a much larger economy and bigger pool of domestic acquirers, has far fewer foreign takeovers - just 19 pct.
Cash-strapped Alstom, which builds France's high-speed trains as well as power turbines and associated equipment, was bailed out by the French government a decade ago and is seen by many in France as an embodiment of its engineering prowess.
Alstom shares were down 1.5 percent to 28.88 euros at 1255 GMT, within a CAC-40 down 0.3 percent and a flat European blue-chip index. DE:FTEU3
The French government had given no hint it was considering such a measure, which comes 10 days ahead of European Parliament elections in which President Francois Hollande's Socialists are expected to be punished for their failure to create jobs and growth, and where the National Front - campaigning on a protectionist, anti-EU platform - is set to score big gains.
France's flatlining economy was making separate headlines on Thursday, missing expectations for 0.2 percent growth in gross domestic product in the first quarter and in sharp contrast to Germany's robust 0.8 percent growth. [ID:nL6N0O04EE]
The government move also comes amid mounting concerns in other countries about foreign takeovers, with lawmakers in both Britain and Sweden expressing opposition to U.S. drugmaker Pfizer's (N:PFE) attempts to buy rival AstraZeneca
Thursday's move returns the phrase "economic patriotism" to the French political lexicon. The expression was a key theme under the conservative premiership of Dominique de Villepin in 2005 after French fears grew that U.S.-based PepsiCo (N:PEP) would mount a hostile bid on dairy giant Danone
The European Union reacted cautiously to the decree.
"We will be looking at case law from the courts of justice ... and, of course, we will be looking at what's in the (European Union) treaties," Michel Barnier, the EU commissioner for the internal market, told reporters in Brussels.
The French rule should not be so wide ranging as to subject "all transactions of purchasing a company ... to a national authorisation. Clearly that would be protectionism," he added.
(Additional reporting by Lewis Krauskopf in New York, Tim Hepher in Paris, John O'Donnell in Brussels and Tom Bergin in London; Writing by Michel Rose and Andrew Callus; Editing by Mark John and Mark Potter)