Miss Tweed : Qatar’s Mayhoola sees its future as an influential investor in Keri

Qatar’s Mayhoola sees its future as an influential investor in Kering

Mayhoola CEO Rachid Mohamed Rachid

The Qatari investment company Mayhoola, owner of the fashion brands Valentino and Balmain, no longer aims to build a luxury group on its own but sees itself as an influential minority shareholder in Kering in the medium term, its CEO told Miss Tweed in an interview.

In July, Mayhoola agreed to sell 30 percent of Valentino to the French-based group for €1.7 billion in cash. The deal is expected to close at the end of November. However, what will happen to Balmain? Will the Qatari company sell it, together with Valentino, in exchange for a bigger stake in Kering? And how influential does Mayhoola plan to be?

It may not be a bad idea for Kering to have a weighty shareholder holding its managers and executives to account, including CEO François-Henri Pinault. It is always healthy to have people around you asking difficult questions. Mayhoola is based in Doha and invests money on behalf of the emir, Sheikh Tamim bin Hamad Al Thani who owns the Paris Saint-Germain football team among many other assets in areas such as real estate, luxury and banking.

Rachid Mohamed Rachid is the CEO of Mayhoola and chairman of Balmain and Valentino. An Egyptian national, he was previously Egypt’s minister of trade, industry, and investment and president of Unilever North Africa. He also runs a family fund called Alsara Investment Group which has more than $2 billion in assets under management. It is behind the planned revival of the Italian brand Walter Albini, for which Alessandro Michele could be hired if he does not go to Fendi. Alsara also owns the Japanese eyewear maker Akoni, which supplies Valentino and Balmain.

Mayhoola may decide to use some of the cash it will receive for the Valentino minority stake to buy Kering shares in the market while the price is depressed, like that of many other luxury stocks. Investors are concerned about a normalization of sales growth after the post-pandemic boom and demand from Chinese consumers not growing as strongly as expected. There is also enduring weakness in the U.S. “While we hope for a rebound in Q4, mostly for technical reasons (easier basis of comparison in China and in the U.S.), we believe we are unlikely to get such comfort about any rebound in momentum before very late in the year,” HSBC wrote in a note published this week.

Rachid told Bloomberg in an interview last month that he expected sales growth in 2023 to be below 10 percent as consumers spend more money on travel and experiences than on luxury goods. He also said that there was an agreement with Kering that Mayhoola should become a shareholder in the French group.

Kering’s stock is already down 30 percent since its peak of around €600 a share at the end of March. It has underperformed sector peers such as Richemont and LVMH, and its shares have nearly halved since an all-time high of more than €800 in the summer of 2021. On Friday, Kering shares closed at a little over €425, valuing the French group at €52.8 billion. It’s possible the share price could slide further after its third-quarter sales trading update on Oct. 24. Analysts expect luxury valuations to reach a low point this results season if companies make no positive comment about the outlook for year-end sales and beyond.

LONG-TERM VIEW
Mayhoola takes a long-term view. It does not care much about stock market gyrations. Its ambition is to remain a strategic investor in the luxury space for years to come. “Many people make the assumption that we should form a group in the same way as LVMH and Kering if we want to be long-term investors and investors in more than one brand,” CEO Rachid told Miss Tweed in an interview at Valentino’s headquarters in Place Vendôme in Paris. “That is not the only way to achieve our ambition in an evolving environment.”

Indeed, Mayhoola’s plan changed from preparing an IPO, before and after the pandemic, to becoming Kering’s strategic partner and, eventually, shareholder. “Our plan was to IPO Valentino when the timing was right to prepare the company for the next chapter,” Rachid told Miss Tweed. “We had this intention for some time, and when we attempted to proceed in the past, we had to postpone due to external market conditions.”

“The purpose of the IPO was to improve the governance of the company, to have better tools for talent incentive mechanisms thanks to instruments like stock options, and to have a currency in the form of shares that would allow for broader strategic considerations. This opportunity with Kering came in that context.”

“The deal structure evolved in a constructive way to address the goals of both parties also thanks to the strong and positive relationship that François-Henri Pinault and myself built together. The deal we have made achieved the same strategic goals we identified as the ones we would pursue with an IPO of Valentino.”

For the moment, it looks like all options remain open.

Valentino and Balmain have been hit by the downturn, industry sources say, particularly their wholesale businesses. Valentino’s turnover generated in its own directly operated stores was up a few percentage points between January and August, industry sources say. Mayhoola is now focused on boosting Valentino’s performance to make the bride more attractive for Kering. The strategy is to move away from its trademark rock studs shoes and bags and get consumers to adopt some of its new products such as the moon-shaped tote with a big V in the middle of its chain handle.

“We don’t have to be a controlling investor,” Rachid said. “We want to be in a position where we can guide, so that we can realize our long-term vision of being part of the luxury leadership in the world and be one of the influential players.”

GUCCI
Mayhoola is keen to partner with Kering, but is also aware the group has many brand and management issues to solve. Sorting out Gucci is a priority since it generates the bulk of profits. Buyers and fashion critics were underwhelmed by the first show of its new designer Sabato De Sarno in Milan last month, as Miss Tweed reported. However, some industry observers believe it could provide a solid basis on which the Italian designer could build for the future. The good news is that there is a lot of potential upside. If De Sarno puts out something that impresses and wows consumers, that will make investors optimistic about future sales growth and, eventually, lift Kering’s share price.

Kering’s former managing director Jean-François Palus, Pinault’s right-hand man, has taken the helm at Gucci and moved to Milan in September. It may be some time before he hires a replacement, industry sources say. Kering conducted a major management reshuffle in July, appointing Palus as Gucci CEO and the Saint Laurent boss Francesca Bellettini as co-CEO of the group, together with the former finance director, Jean-Marc Duplaix. Bellettini runs the brands and decides on strategy while Duplaix looks after operational matters.

In that reorganization, some external influence from Mayhoola could be salutary. Indeed, Kering could benefit from Rachid and his teams asking tough questions and acting as checks and balances for the group. However, Mayhoola is not yet in a position to do so, and it does not plan to let Kering interfere with Valentino.

“Our agreement is clear that Mayhoola, as majority shareholder, will keep managing the company in the next five years, in line with the strategy that we have pursued so far,” Rachid said. “Therefore, there is no disruption or ambiguity in terms of the management of the business. Of course, we look forward to benefiting from Kering’s extensive knowledge and experience. Their resources will create synergies to make Valentino even more successful than it is today.”

Kering and Mayhoola have remained elusive about what these synergies or “extensive” knowledge and experience would be and how they would work together in practice. Industry insiders suggested that this would include things such as securing good locations for boutiques or negotiating advertising budgets. For now, for reasons of competition, Kering does not want to be seen to be helping Mayhoola since it will own only 30 percent of Valentino, not enough to justify any form of strategic collaboration.

BALMAIN
What is not clear is what will become of Balmain, and also Pal Zileri, Mayhoola’s Italian menswear brand which been losing money for years. Pal Zileri is estimated to generate less than €20 million and continues to make a loss, industry sources say. However, Balmain is a much more attractive asset.

When Mayhoola bought Balmain in 2016 for about €460 million, it generated some €130 million in annual sales. Now, it makes about €350 million. Its underlying profitability (Ebitda) is estimated at a little over 10 percent of turnover, or between €35 and €40 million. Using current industry multiples, Balmain is estimated to be worth between €1 billion and €1.2 billion, or an enterprise value of a little more than three times annual sales, which is what Kering is on now. If you use Balmain’s estimated underlying profitability, or Ebitda, of around 10-15 percent, that implies around €38 million, give or take, and multiply it by 30, that gives a valuation of €1.14 billion.

The deal between Kering and Mayhoola, signed in July, established Valentino’s enterprise value at around €6 billion and an equity value of €5.6 billion, which excludes net debt. It is understood that, when the moment comes for Kering to buy the rest of Valentino, likely to take place within five years but maybe sooner, the same multiples apply, industry sources said.

Kering paid 16 times Valentino’s 2022 Ebitda of €350 million, using international accounting standards, or IFRS. However, when deducting the rent Valentino pays for its boutiques around the world, that profitability figure comes down to €195 million, which means actually 31 times, industry sources say. Under the terms of the deal, it is understood that the same multiples will apply when Kering buys the rest of Valentino. It is not clear how much will be paid in shares and in cash.

What about Balmain? The French brand, founded in 1945 by Pierre Balmain -- around the same time as Dior -- is known for its pricey six-button military-style jackets and its embroidered evening dresses. It also sells €1,500 black leather B-Buzz bag with a golden “B” buckle and €1,000 spacecraft-looking Unicorn sneakers in leather and Neoprene. Balmain generates a significant proportion of business with multi-brand retailers with whom it has around 350 points of sale. When Mayhoola acquired it, it had fewer than 10 boutiques. Now it has about 30 worldwide, industry sources say.

Balmain has been enjoying steady success. First, from 2006 to 2011 under designer Christophe Decarnin, who famously resigned due to a burn-out, and then under Olivier Rousteing who became one of the fashion industry’s youngest creative directors at the age of 25 in 2012. Yves Mathieu-Saint-Laurent was 21 when he became creative director of Dior’s Haute Couture in 1957.

Rousteing’s active role in social media has been instrumental in boosting the brand’s profile and aura. The designer boasts nearly 10 million followers on Instagram and regularly posts photos of his jet-set lifestyle and Balmain events, attended by celebrities such as Beyoncé and Kim Kardashian.

Now the designer is spearheading a push into beauty after a license deal was signed with the Estée Lauder Companies in 2022 which includes cosmetics, fragrance and make-up. Balmain is expected to launch the new line in September 2024. The brand recently posted a teaser on You Tube on the topic.

For now, Kering has not expressed any interest in acquiring Balmain. Also, we will have to see what Kering’s Alexander McQueen becomes after 25 years of collaboration with designer Sarah Burton, who was creative director for half that time. Her replacement is Sean McGirr, 35, a Central Saint Martins graduate who was in charge of ready-to-wear at JW Anderson. It’s not yet clear how McQueen’s new designs would sit next to a brand like Balmain.

The two brands are both into evening wear, but McQueen’s accessories business is more developed than Balmain’s.

So, if Balmain is worth more than €1 billion and Valentino now €6 billion, that makes more than €7 billion. At today’s valuation, if Kering has a market capitalization of €52 billion, that gives you a stake of about 13 percent, which is not negligible. However, that scenario is unlikely to materialize.

What could happen is that Mayhoola leaves Balmain out of the equation and sells only 70 percent of Valentino and agrees to be paid partly in Kering shares. Depending on the terms, that could give Mayhoola a potential stake of about 8-9 percent, some analysts estimate. However, whatever the size of the holding Mayhoola ends up owning, the Qatari company would become Kering’s second-biggest shareholder after the Pinault family, which has a 42 percent stake and controls 59.3 percent of voting rights.

One could ask if there are political implications in letting the Qatari royal family become the No. 2 shareholder in a French fashion champion. Not necessarily. The Qataris already own a good chunk of prime real estate in key cities, such as Place Vendôme and the Champs Élysées in Paris and the Empire State Building in New York. They also have the department stores Printemps and Harrods and a small percentage stake in LVMH. These investments are part of a strategy to diversify into sectors other than oil and gas, for the day when reserves run out. Talking about the Qataris’ presence in real estate and in luxury generally, a senior industry told Miss Tweed on condition of anonymity: “It’s true that the Qataris have been part of the picture for a while.”

FT : US consumers cut back on credit cards as repayment charges hit record high

US consumers cut back on credit cards as repayment charges hit record high
Rising debt burden raises fears for financial health of American households

A drop in credit card spending is raising concerns about the financial health of the US consumer and the outlook for holiday sales as cardholders face record-high interest charges.

The fall in card spending comes as consumers’ finances are being strained by both higher interest rates and debt loads, particularly when it comes to borrowing on credit cards. This debt has been rising in the past year and recently topped $1tn for all Americans for the first time.

“Credit card spending was soft in September, and what was notable was that softness was across all sectors,” said Citigroup economist Robert Sockin.

Credit cards, unlike mortgages and other types of consumer credit, tend to have variable terms, and are among the first types of debt on which consumers feel the impact of rising rates.

On Friday, the Federal Reserve reported that the average annual interest rate that consumers are paying on credit card balances hit a record high of 22.8 per cent at the end of August, up from 16.3 per cent a year ago.


As a result, US consumers are in line to pay as much as $40bn more on interest payments in the next year on their credit card balances than they were a year ago, according to WalletHub, which tracks credit cards and consumer finances.

“We have heard that there is a slowdown in the credit card market,” said WalletHub’s chief executive Odysseas Papadimitriou. “The people who are carrying credit card debt are carrying it for longer, and not paying it down as much.”

Credit card spending at retailers dropped nearly 11 per cent last month, Citi reported this week, based on data from the bank’s own card customers. That decline, the fifth consecutive month of “spending deceleration”, was the largest of the year so far.

“After a solid summer, spending appears to have decelerated post-Labor Day,” Bank of America economist Shruti Mishra wrote in a research note on Thursday.

Citigroup chief executive Jane Fraser last week warned that “cracks” were emerging in the health of US consumers. “I think some of the excess savings from the Covid years are getting close to depletion,” Fraser said, speaking on CNBC.

Top retail executives have also warned that rising interest rates could dampen consumer spending for the rest of the year. Walmart chief executive Doug McMillon said in August that rising gas, utilities and borrowing costs would take their toll on consumers.

“Household budgets are still under pressure,” McMillon said.

While there has been a marked slowdown in credit card spending, default rates, while up, are not much higher than they were before the start of the pandemic. And US consumers appear, at least for the moment, to be supported by a strong jobs market. The US labour department reported on Friday that employers collectively increased their payrolls by a stronger than expected 336,000 positions in September.

“The continued strength in the labour market, including solid gains in employment and real wages, has supported spending against forecasts for a looming downturn in activity,” noted Michael Hanson at JPMorgan.

“While the health of the consumer will ultimately turn on the health of the labour market, household balance sheets remain robust.”

Consumers have been spending down savings accumulated during the Covid lockdowns when interest rate payments were put on hold, and the government dolled out direct payments and other stimulus measures to combat the economic impact of lockdowns.

But since March 2022, the Fed has rapidly raised rates to battle persistent inflation. The policy rate now hovers at a 22-year high of 5.25-5.5 per cent. Officials are still toying with the idea of delivering one more quarter-point rate rise this year before pausing for most of 2024.

Overall consumer spending, which includes rent and other purchases that consumers do not typically put on credit cards, is continuing to increase, though at a slower pace. Some economists say the drop in spending on credit cards reflects growing financial strains on lower income consumers, who rely more heavily on revolving credit, as well as the tightening of lending standards by banks.

“The overall growth in credit card debt is something we have been concerned about,” said Sockin. “I think we are starting to see growing financial strain at the lower end of income levels.”

EY-Parthenon cited “elevated inflation, higher interest rates, and moderating income gains”, as it predicted a moderate 3 per cent rise in retail sales for the November and December holiday season. This would represent a fall from the 5.8 per cent pace of last year and well short of the post-pandemic 13.2 per cent splurge of 2021.

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FT : JPMorgan Chase studied bid for Metro Bank

JPMorgan Chase studied bid for Metro Bank
US bank opted not to proceed because of extra capital a new buyer would have to put in

JPMorgan Chase studied a bid for Metro Bank before opting not to proceed, as the UK challenger bank seeks to shore up its balance sheet.

The US banking group decided on Saturday night that it would not proceed with a potential deal because of the extra capital a new buyer would have to put in, according to two people familiar with its deliberations.

A deal would have been done through JPMorgan’s British digital banking unit, Chase UK, which launched two years ago and now has more than a million customers across the country.

Metro said last week that it was considering a range of options, including a combination of equity and debt issuance, as well as refinancing and asset sales. The bank recently approached investors for as much as £600mn, the Financial Times reported.

The lender, which set out a decade ago to challenge the dominant players in UK retail banking, is hoping to finalise a deal that would secure it new funds before the stock market opens on Monday.

The Bank of England’s Prudential Regulation Authority, which supervises banks, approached a number of big UK banks last week to see if they had any interest in Metro, according to three people familiar with the approaches.

The regulator is keen that any bids would be for the whole bank, rather than parts of the business, according to two people familiar with the approaches.

In the US, JPMorgan played the role of white knight earlier this year when it took over ailing lender First Republic amid a liquidity crisis for smaller US banks.

A group of Metro’s bondholders have separately proposed a £600mn capital injection to refinance the high street lender. Metro has already rejected a bid from fellow challenger bank Shawbrook, but the latter remains interested in doing a deal, according to one person close to the discussions.

Metro, which opened its first branches in 2010 and floated six years later, sought to shake up the UK banking sector with its flashy branding, its branches offering free dog biscuits and coin counters it branded Magic Money Machines. But the lender’s shares cratered in 2019 after a serious accounting error.

It is now looking to raise hundreds of millions of pounds after regulators did not approve a request that would lower the capital requirements of its mortgage book. If the talks with bondholders fail, potential acquirers are watching closely to see whether there is any political or regulatory intervention that would improve the terms of the deal.

Analysts at Autonomous said in a note on Friday that it was “very hard to see how the maths makes sense for any buyer absent material sweeteners”, estimating that the bank would be short about £500mn in equity if it were sold because any buyer would have to revalue assets.

The bank said last week that it “continues to be well positioned for future growth”, pointing to its underlying profits for the past three quarters.

JPMorgan, Metro and the PRA declined to comment.

Reuters : Birkenstock eyes pricing IPO at top of range, sources say

Birkenstock eyes pricing IPO at top of range, sources say

NEW YORK, Oct 8 (Reuters) - Birkenstock Holding Ltd (BIRK.N) has secured enough commitments from investors to price its U.S. initial public offering (IPO) at the top of its indicated range and attain a $10 billion valuation, according to people familiar with the matter.

The German premium footwear company will make a final decision on pricing its IPO at the top of its $44-to-$49-per-share range on Tuesday, ahead of its shares debuting in New York on Wednesday, the sources said.

Birkenstock would end up raising $1.58 billion at the top of the range.

The sources cautioned the deliberations are fluid and requested anonymity because the matter is confidential. Birkenstock declined to comment.

Birkenstock is the fourth major company to launch a U.S. IPO in the last four weeks following those of chip maker Arm Holdings Plc , grocery deliver app Instacart (CART.O) and marketing automation platform Klaviyo (KVYO.N).

They priced their IPOs at the top or above their indicated range and saw their shares rally at the debut, only to give up most of the gains in the following days. While shares of Arm and Klaviyo still trade above their IPO price, Instacart's stock is now worth less than its IPO value.

This helps explain why Birkenstock is not inclined to raise its IPO price range despite the strong initial investor demand.

It is already seeking a valuation that is frothier than some bigger shoe brands. It would be worth about 27 times trailing 12-month earnings before interest, taxes, deprecation and amortization at the top of its range, when Nike Inc (NKE.N) trades at 21 times.

To leave less to chance, Birkenstock launched the roadshow for its IPO last week with some investors lined up. Financière Agache has indicated an interest in buying $325 million worth of shares while Durable Capital Partners LP and Norges Bank Investment Management have shown interest in $300 million worth of shares, Birkenstock disclosed in a filing.

Birkenstock was founded in 1774 in the German village of Langen-Bergheim by Johannes Birkenstock and his younger brother Johann Adam Birkenstock, who were both shoemakers. The Birkenstock family ran the business for six generations after its founding.

The brand has been seeking to position as a fashionable item worn by models and celebrities. Barbie, played by Margot Robbie, wore a pink pair of Birkenstocks in the final scene of the movie released this summer.

L Catterton, the private equity group backed by French billionaire Bernard Arnault and luxury goods empire Louis Vuitton Moet Hennessy (LVMH.PA), acquired a majority stake in Birkenstock in 2021.

After the IPO, L Catterton will hold an 82.8% stake in Birkenstock and control a majority of the combined voting power of its outstanding shares.

FT : Italy’s central bank governor urges Giorgia Meloni to heed investors’ debt

Italy’s central bank governor urges Giorgia Meloni to heed investors’ debt fears
Ignazio Visco says concerns persist about country’s long-term growth prospects

Italy’s departing central bank governor has urged prime minister Giorgia Meloni’s government to soothe investors’ fears about the country’s debts by reducing its fiscal deficit and tackling reforms needed to boost growth.

Ignazio Visco, who steps down at the end of this month after 12 years leading the Bank of Italy, told the Financial Times that the recent surge in Rome’s borrowing costs showed investors were “insuring themselves” against a spiral of weak long-term growth prospects and high debt.

“Obviously you need to understand why markets may be worried,” Visco said. “I don’t think it is speculation against the country. I think it is basically a concern about . . . the long-term potential growth rate of the economy.”

Italy’s benchmark 10-year bond yield last week surged close to 5 per cent for the first time since Europe’s sovereign debt crisis raged 11 years ago. The move came amid mounting tensions in global bond markets, which sold off heavily over fears central banks will keep interest rates higher for longer to tame inflation.

Markets were also spooked when Italy last month raised the country’s planned fiscal deficit for this year from 4.5 per cent of gross domestic product to 5.3 per cent and for next year from 3.7 per cent to 4.3 per cent. It also cut the growth forecast for both years.

The knock-on effect is that Italy’s debt — one of the highest in Europe — is set to rise from 140 per cent of output, after two years of declines.


“The increase in the debt-to-GDP ratio has been mostly because of the dismal performance of GDP,” Visco said, warning that “even the service sector is slowing down” and a eurozone-wide recession was possible in the second half of this year. 

Rather than blame weak growth, some of Meloni’s supporters have publicly suggested international investors — and her domestic political rivals — are collaborating to seize on market turbulence in an effort to unseat her government.

Silvio Berlusconi’s government was felled in 2011 after a crisis in which Italy’s bond yields soared to more than 570 basis points above Germany’s.

The closely watched spread between Italian and German 10-year bond yields is close to 200bp — a level that Visco said was “a concern that it is much higher than in Spain or Portugal”.

However, Visco said Meloni’s government had been “performing better than many had expected” on its budget, avoiding her former UK counterpart’s ill-judged tax cuts, which caused a bond market crisis. “Maybe Liz Truss was there to show the way not to make mistakes in communication,” he added.

But he urged Meloni’s government to recognise that international investors have legitimate concerns in a climate of rising interest rates, high energy costs, tensions in the global trading system and Italy’s rapidly ageing population. 

“This is why you have to respond to the markets with two things: First, a view of the longer-term plan for growth and second, the action on the short and medium term as far as the fiscal imbalances are concerned,” Visco said.

For now, Rome is tapping support from Italians’ high domestic savings to meet its borrowing needs. This week, Italian households invested more than €17.2bn in a bond issue targeting local retail investors.

Visco has served seven different Italian prime ministers since taking over from Mario Draghi as head of the central bank, which he joined in 1972.

He remembers writing a paper 32 years ago recommending a freeing up of competition in the services sector, as well as measures to reduce divergence of the poorer south from the richer north and to bring down government debt. “It is no different now,” he said.


Yet Visco believes the outlook for Italy is not all gloomy.

Rome has various avenues through which it could bolster growth, including making the most of €200bn in funding from the EU and bringing more women into the labour market. “Italy can grow more and we should not ignore the low levels of private indebtedness and the positive net foreign position of the country,” he said.

Currently, Italy has the lowest female labour force participation rate of any major European economy.

“There are a number of things in Italy that are not on a par with what you have in the rest of Europe, like the ability to have children in school for the whole day,” Visco said, adding that Rome could also focus on better integrating immigrants into the workforce and improving training in digital skills.

He was critical of the costly Superbonus scheme designed by a previous government, which offered Italians tradable tax credits worth 110 per cent for home improvements that would cut energy use.

The scheme triggered an Italian home renovation frenzy now weighing heavily on public finances. Though the final cost of the programme — now phased out — remains unclear, Visco said the final tab is likely to exceed €100bn, or about 5 per cent of GDP.

He said it was “unfortunately a good lesson, a very good lesson” in the importance of “targeting and tailoring” in government programmes, and said Rome’s initiatives to assist poor households with high energy costs had been far better designed. 

Visco said the Banca d’Italia was “not consulted” before Meloni’s government roiled markets with a windfall tax on commercial banks’ net interest margins. But after it was watered down last month — giving banks the option to bolster capital instead of paying the tax — he “welcomes the changes so far proposed”.

FT : France urges swift deal on EU power reform to counter US subsidies

France urges swift deal on EU power reform to counter US subsidies
Energy minister says bloc will lose out to Biden’s IRA if Paris and Berlin fail to resolve differences over nuclear power

The US will be the main winner if a Franco-German divide over nuclear power prevents a long-awaited reform of Europe’s electricity market being finalised, France’s energy minister has warned. 

Agnès Pannier-Runacher said in an interview with the Financial Times that the sweeping overhaul of EU rules was needed as soon as possible to give businesses visibility on power prices, at a time when the US was luring industry with President Joe Biden’s clean energy subsidy programme under the Inflation Reduction Act.

“The aim is to have an adequate and strong answer to the [IRA] and the fact that industrial investments in the US have been multiplied by three” since the law was enacted, Pannier-Runacher said. “We have a matter of weeks to act and find a solution.”

The call comes ahead of a bilateral conference in Hamburg, starting on Monday, between French president Emmanuel Macron and German chancellor Olaf Scholz, accompanied by their cabinet ministers.

Energy issues will be high on the agenda because Paris and Berlin have been arguing for months over the EU electricity market reform, specifically over how nuclear energy will be priced and the extent to which it can be subsidised.

The overhaul was triggered by the fallout from Russia’s full-scale invasion of Ukraine last year, when energy prices jumped, and is aimed at helping stabilise long-term prices.

The negotiations have been coloured not just by divergences over technology — Germany has shut its last nuclear reactors while France, which generates 70 per cent of its electricity from nuclear, has pledged to build new ones — but also by German fears of the competitive disparities the overhaul could create. 

Behind the scenes in recent days, Paris and Berlin have been exchanging duelling policy papers and rewritten clauses for the draft law, while marshalling support from other EU member states.

On this reform and others, France has mounted a pro-nuclear campaign now joined by other countries that use the technology, including Poland and Hungary, in an effort to ensure the sector will be treated favourably.

But its drive has hit roadblocks, particularly in Germany, over concerns France will end up riding roughshod over state aid rules and benefit from lower prices for consumers and industry that other countries cannot match.

Pannier-Runacher said it was a misconception that electricity would be vastly less expensive in France than elsewhere and rejected claims that the country was wooing businesses to relocate to benefit.

France’s Le Point newspaper reported this week that some members of Scholz’s entourage harboured suspicions that French nuclear operator EDF was trying to lure German companies to France.

“This idea that we should be warring among ourselves, or the fantasy that [businesses] would relocate from one [European] country to another — I’m still waiting to know the name of any German business that has massively shifted to France,” Pannier-Runacher said.

“On the other hand, I know French and German businesses that are deciding on investments in the US, when they tell us they would have done them in France or Germany had they had visibility on the market.”

Berlin is so worried about the impact of high prices on its export-led economy that it has been weighing a proposal to subsidise electricity for energy-intensive companies, though the idea has yet to be formally adopted by the government. Such a move could pose competition issues, Brussels has warned.

Whether France and Germany will be able to square their differences in time for the next meeting of EU energy ministers on October 17 is unclear. The risk is that the reform will not be done by the end of the year and only become harder as EU parliament elections approach.

Berlin appeared to hold out an olive branch recently when Sven Giegold, state secretary at the German economy and climate ministry, told the FT he was seeking a “grand bargain” with France to resolve the stand-off.

Pannier-Runacher said she had not seen the compromise being floated by Giegold but that she hoped she would at the meetings in Hamburg.

“I hope the Germans will be ready in every sense of the word to allow us to find that compromise,” she said of the upcoming talks in Germany and at EU level.

The main thing still to be ironed out in the reform is the use of a mechanism known as “contracts for difference”, which guarantee a minimum price for energy produced, and whether they should be applied to existing nuclear plants or just new ones. The CFDs have typically been used to incentivise renewable energy projects by guaranteeing revenues for producers, and Berlin has argued they should only apply to new investments.

Pannier-Runacher said French reactors built decades ago required billions of euros in new investments for maintenance and to extend their lifespan and therefore should not be penalised with heavy restrictions around the application of CFDs.

As well as a minimum price, the CFD mechanism allows governments to recover excess revenues if prices jump past a set threshold, raising more questions about how governments then use those funds, especially if they were to be directed at providing further energy subsidies.

France had been happy with an original proposal on market reform put forward by the European Commission in March. But subsequent amendments with more restrictions on the uses of CFDs in a version presented by the European parliament have sparked the pushback.

“At a certain stage it amounts to a discrimination against nuclear. We would not be allowed to do in the French system what other countries can [with their energy assets],” Pannier-Runacher said.