The body was found after a car rammed into the factory causing an explosion that put France on its highest alert amid fears of a terror attack.
Within hours a man was arrested who officials said had been investigated over possible ties to radical Islam.
His boss, the owner of a delivery firm, was the man found beheaded, police say.
The delivery company had made regular trips to the factory, which is owned by the US-based company Air Products, Dauphine Libere newspaper reports.
Few details of the killing have been released, but the businessman's head was reportedly found on a post at the factory, in Saint-Quentin-Fallavier, some 40km (25 miles) from Lyon.
Mr Hollande said the decapitated body had "inscriptions" on it. The French interior minister said: "A flag with Arabic writing on it was found at the scene." » | Friday, June 26, 2015
