Eridania Béghin-Say S.A.

1821–2000

Founded: 1821

Employees: 21,693

Sales: EUR 9.01 billion (US$8 billion) (1999)

Stock Exchanges: Paris

NAIC: 311225 Fats and Oils Refining and Blending; 311312 Cane Sugar Refining; 311119 Other Animal Food Manufacturing; 311111 Dog and Cat Food Manufacturing

Eridania Béghin-Say S.A. is one of the world's leading agro-industrial concerns with operations centered around raw foods and ingredients processing and interests ranging from sugar refining to pet foods. Eridania Béghin-Say's activities are divided into five major divisions: Ceresucre; Cerestar; Central Soya; Cereol; and Provimi. The company's sugar division, Ceresucre, which combines the company's France-based Béghin-Say subsidiary and Italy-based Eridania subsidiary, is the world's number three sugar refiner, operating 26 refineries and processing more than 20 million tons of sugar (primarily beetroot-based), worth some 15 percent of the total European Community sugar quota. Cerestar, the company's starch and derivatives division, produces more than 3.5 million tons of starch products from corn, wheat, and potatoes, as well as 1.9 million tons of starch byproducts. Cerestar, which operates 15 factories, leads the European market in its category and is the fifth largest starches producer in the United States. Central Soya processes nearly 6.5 million tons of oilseeds annually and produces proteins and lecithins for the North American market; through subsidiary CanAmera, this division holds the number three position in its market. In Europe, Cereol is a diversified division offering oilseed processing, seed and olive oil marketing (including sunflower, rapeseed, soya, and other food oils under brands Lesieur, Koipe, Carapelli, and other brand names), and other products, including rice, margarines, and condiments such as ketchup, mustard, and vinegar. This division also contained the Ducros herb and spices subsidiary, which was sold to McCormick in 2000. With 40 production facilities, annual processing of more than 7.2 million tons of oilseeds, 195 million liters of olive oil, and 880 million liters of seed oils, Cereol also represents Eridania Béghin-Say's largest division. The last division, Provimi, is the Rotterdam-based holding company for the company's worldwide pet foods subsidiaries, with 66 production facilities producing nearly two million tons of animal feed products--from raw ingredients to packaged pet foods--each year. Provimi holds seven percent of the world market in this category, making it the international leader. Led by Stefano Meloni, approximately 51 percent (and more than 68 percent of voting rights) of Eridania Béghin is owned by Italian agro-industrial-energy conglomerate Montedison. The company has been hard hit by the economic crises in the Russian and Asian markets and, especially, by the collapse in market prices for much of its key products. As such, Eridania Béghin-Say, which launched a downsizing of its sugar division at the beginning of 2000, has seen its annual sales slip back to barely more than EUR 9 billion, while net profits have slid to less than EUR 93 million--a drop of more than 60 percent over the previous year.

Rise of a Sugar Giant in the 19th Century

By the early 1990s, the company's debt had reached L 31 trillion, or nearly US$16 billion.

1811–1821

War with England had closed off France's access to its cane sugar-producing island colonies in the early years of the 19th century; French-imposed blockades also closed off imports of British sugar to the continent. By then, per capita consumption of sugar in France had risen to some three kilograms per person and already had become important not only as a flavoring ingredient, but also as a preservative for fruits and other foods. The search for an alternative sugar source, especially for a plant that could be grown on the European continent, was stepped up under orders from Napoleon.

France was to play a leading role in developing the first viable non-cane sugar source. French agriculturists initially turned to the grape, but the resulting sugar was not satisfactory. Beets were long known to contain sugar--but their sugar content was low and extracting and crystallizing the sugar was not technically possible. The first sugar beet refinery was built in Germany at the end of the 18th century, but failed because of the beet's low sugar content.

Under Napoleon, French agriculturists began developing a variety of beet with a higher sugar content, successfully raising content to nearly 20 percent by the end of the first decade of the 19th century. Napoleon ordered the wide-scale planting of the new beet variety--more than 32,000 hectares were planted in 1811. The following year proved decisive for the sugar industry, when Benjamin Délectait successfully crystallized the sugar from the new beet. Among the earliest of the new refineries was that of Etablissements Say, one of the predecessor companies to Eridania Béghin-Say.

French sugar beet production was launched on a large scale; by 1813, France counted some 300 sugar refineries, with total sugar production reaching 3,500 tons. This level remained small compared with the country's colonial sugar cane production, which had reached 150,000 tons per year before the turn of the century, and prices remained high during the war, reaching 2.5 francs per kilogram. Nonetheless, it enabled France--and the rest of Northern Europe&mdashø achieve a degree of self-sufficiency in its sugar production.

The collapse of Napoleon's regime in 1814 was to send the sugar beet industry into disarray. The stocks of colonial sugar--warehoused during the British blockade&mdashrived in the ports of Europe and brought on the collapse of sugar prices. Many of the country's sugar beet refineries were forced to close, and the sugar beet industry, unable to compete against the larger, more mature sugar cane industry--which not only used slaves for its labor force, but also held a great deal of political clout in the French government&mdash-tered a downswing.

Nevertheless, the appeal of the sugar beet crop for France's farmers--particularly in the country's northern regions--remained high. By the late 1830s, the country counted nearly 600 sugar producers. Among them was the sugar beet farm of the Béghin family, founded in 1821, at Thumeries near the Belgian border.

In the 1840s, Béghin, Say, and the rest of France's domestic sugar producers faced a major threat from a coalition between the country's colonial cane sugar producers and its shipping industry, which convinced the French government to propose legislation barring the production of beet sugar. The political power of the colonial sugar masters meant that the legislation nearly passed. Defeated in the house of deputies (equivalent to the French congress), the colonial sugar industry faced a new setback with the abolition of slavery in the French colonies.

1898–1987

The resulting rise in cane sugar prices made beet sugar a competitive commodity and paved the way for the maturation of the French sugar industry. By the 1880s, France had become the top European producer of sugar. The Béghin family, represented by Ferdinand Béghin, and Etablissements Say began their rise to dominance of the French sugar industry. For the Béghin family, growth came especially after sons Joseph and Henri Béghin inherited Ferdinand Béghin's business, renaming the company Société F. Béghin in 1898. The two Béghin brothers went on to build the company into one of France's major sugar refineries, transforming the family farm into a true industrial complex. Etablissements Say, meanwhile, also was expanding, with refineries, warehouses, and other facilities located in Paris and elsewhere.

The outbreak of World War I spelled the beginning of a crisis period for the French sugar beet industry--with much of the country's sugar production and refineries located in the North, much of the domestic industry's production facilities were destroyed. Cane sugar once again dominated the market; beet sugar slowly rebuilt its position, only to face a new crisis when, at the beginning of the 1920s, world sugar prices collapsed. Despite production quotas established in the mid-1930s, agreed upon among the various producer-nations, the entry into World War II marked a new period of crisis for the sugar industry. By then, however, beet sugar had captured more than one-third of worldwide sugar production.

France's sugar industry was marked by consolidation, which reached its peak in 1973 when F. Béghin and Etablissements Say merged to create the country's leading sugar manufacturer, Béghin-Say. The company went on to diversify, taking a leading position in the paper and cardboard industry as well, through its holdings in Kaysersberg and Corbehem.

Agribusiness Giant for the 21st Century

By the late 1970s, Béghin-Say had attracted the interests of Italy's Serafino Ferruzzi. Nicknamed 'the Farmer,' Ferruzzi had built an agricultural empire that included a minority share of Eridania, Italy's top sugar producer, itself founded in 1899. Ferruzzi, through the family-run Ferruzzi Finanziaria, boosted its share of Eridania to nearly 65 percent in 1978. Eridania was added to Ferruzzi's growing portfolio of agricultural, industrial, and other interests, forming Montedison. Montedison also included the holding of the Edison electric power utility, Italy's largest private electricity supplier.

Ferruzzi's agro-industrial ambitions quickly crossed the border. In 1980, the Ferruzzi family attempted a surprise takeover of Béghin-Say, building up a more than 24 percent share in the French sugar leader. Intervention from the French government helped prevent the takeover, and the following year, in an agreement made between Ferruzzi and the government, Ferruzzi agreed to leave Béghin-Say's French management in place and not to exceed a shareholding of 50 percent in the French sugar producer. Ferruzzi reached that limit by 1986, though the restriction was later lifted.

Despite the limits imposed by the 1981 agreement, Ferruzzi's control of Béghin-Say enabled him to begin transforming the company from a primarily French-focused company into a diversified agro-industry concern. In 1986, Béghin-Say sold off its interests in the paper industry--including selling 50 percent of its Kaysersberg subsidiary to Montedison (and the other 50 percent to James River). Next, Ferruzzi led Béghin-Say and Eridania on a combined buying spree, branching out from sugar refineries and products into the wide agro-industrial field. The first of the combined acquisitions was made in 1987, with the purchase of the European starch and derivatives arm of Corn Products International. Held 50--50 by Eridania and Béghin-Say, the new operations were regrouped under the name Cerestar.

1893–2000

In that same year, the Eridania Béghin-Say partnership acquired Central Soya, based in Decatur, Indiana, and founded in 1934. The Eridania Béghin-Say buying spree continued into the early 1990s, adding Italy's leading soybean processor Olii e Risi, then French fats and oil leader Lesieur, which also brought control of Spanish edible oil leader Koipe. These acquisitions were joined by a 90 percent share in Carapelli, Italy's olive oil leader, founded in 1893, as well as the oilseed crushing and refinery facility of Unilever at Mannheim, Germany, boosting Eridania Béghin-Say's growing interest in that sector by 1.2 million tons.

In 1991, Eridania increased its holding in Béghin-Say to 60 percent. That year, the partners expanded their sugar production operations into eastern Europe, acquiring shares in three Hungarian sugar companies and gaining control of some 40 percent of that country's total sugar production. The following year, the companies added Ducros, founded in 1963, which in less than 30 years had risen to take the market leadership in France, Italy, Spain, and Portugal for its Ducros range of herbs and spices and its Vahine brand of baking ingredients.

In 1992 Eridania and Béghin-Say formalized what had by then become a single operation. Transferring shares of Eridania into those of Béghin-Say, the company adopted the single name of Eridania Béghin-Say, maintaining headquarters in France but becoming a subsidiary of Montedison. By then, Montedison--and its parent Ferruzzi Finanziaria--had risen to become Italy's second largest industrial conglomerate. Yet the Ferruzzi empire--led, after Serafino Ferruzzi's accidental death, by his son-in-law Raul Gardino--was about to collapse. Following his father-in-law's lead, Gardino had gone on a diversification buying spree, financing the conglomerate's growth through debt. By the early 1990s, the company's debt had reached L 31 trillion, or nearly US$16 billion. Then Gardino came under scrutiny during a government corruption investigation that was to bring down the Italian government and see the ruin of two of its major political parties. Gardino himself committed suicide, rather than face bribery and corruption charges.

Montedison fell into the hands of its creditor banks. Reorganized into two major components, the Eridania Béghin-Say agro-industrial unit and the Edison energy utility, Montedison appointed a new chairman and CEO for Eridania Béghin-Say, Stefano Meloni. Under Meloni, the company continued its expansion, adding an animal and pet foods component, and then purchasing American Maize Products in 1995 to establish the Cerestar USA subsidiary. The company also began an international marketing campaign for its Carapelli olive oil brand, introducing it first in Europe and then moving into the North American market.

Eridania Béghin-Say continued its expansion in the late 1990s, entering the Polish market with the acquisition of a majority stake in ZT Kruszwica, that market's leading oilseed and bottled oil concern, then adding the Ukraine-based sunflower oil producer DOEP. The company also entered South Africa, China, and Brazil, while continuing to expand its holdings in Spain, Italy, and France. In 1998, the company boosted its animal feeds section with the acquisitions of the United Kingdom's Top Number Feeds and Happidog Pet Foods, the United States' Vigortone, and Alimental, the Argentine-based maker of animal feed products.

Despite its expansion moves, Eridania Béghin-Say was rocked by the economic crises in Asia and Russia. The collapse of prices for many of the company's core products, including worldwide sugar prices, caused the company to see its annual sales slip and its net profits fall. In response, the company took a two-pronged approach, announcing at the beginning of 1999 its intention to downsize its Béghin-Say operations, while introducing new sugar-based products, including its Zefiro and Actisucre. The latter was the product of the company's new Health and Nutrition division, launched in March 2000, and devoted to creating so-called 'functional foods' with health-benefit properties. The company also disposed of a number of other nonstrategic operations, among them a majority share of its seeds operations, sold to Novartis in mid-1999.

By then, the company had reached an agreement to sell its Ducros subsidiary to McCormick & Co. for US$394 million. This disposal represented a major step in the company's restructuring around a core range of strategic activities--sugar, starch, oilseeds and food oils, and animal nutrition--meant to return the company to sales and profits growth in the early years of the new century. Meanwhile, the Ferruzzi company, reorganized as Compart, moved to regain full control of Montedison in 2000, building a position to 92 percent in that company and its 51 percent share of Eridania Béghin-Say.