Suez Lyonnaise des Eaux

1858–2000

Suez Lyonnaise des Eaux has transformed itself into one of the world's leading multi-utility powerhouses, offering private water, gas, electricity and waste-management services in more than 120 countries. The result of a 1997 merger between Compagnie de Suez--the company that constructed the Suez Canal--and Lyonnaise des Eaux-Dumez, and joined with the holdings of Société Générale de Belgique (SGB), Suez Lyonnaise des Eaux is the world's leading water treatment and services group (vying with fellow French company Vivendi) through its subsidiaries Degrémont, Lyonnaise des Eaux, and two new U.S. subsidiaries, Nalco Chemical and United Water Resources, acquired in 1999. Through its Tractebel subsidiary, based in Belgium, Suez is also the world's fifth largest independent energy producer, with a capacity of more than 42,000 megawatts per year. In 2000, the company regrouped its waste management, under its Tractebel and SITA subsidiaries. While power generation remains Suez Lyonnaise des Eaux's main revenue source, the company has also launched itself into France's communications market, with shareholdings in cable television, internet and mobile telephony (NOOS), satellite television (TPS), and broadcast television (M6). These activities represent only slightly more than one percent of Suez Lyonnaise des Eaux's annual sales of nearly EUR 31.5 billion. Until 2000, the company was also active in construction, through subsidiary Groupe GTM; this subsidiary was merged into a joint venture with French construction and services giant Vinci. The company is led by President and CEO Gerard Mestrallet, who is credited with guiding the merger between Suez and Lyonnaise des Eaux and transforming the company from a sprawling conglomerate into a streamlined, coherent power utilities group.

Constructing History in the 19th Century

Compagnie Universelle du Canal Maritime de Suez was the brainchild of Ferdinand de Lesseps, formed in the 1850s in order to dig and then operate the Suez Canal. De Lesseps, an engineer and diplomat, was acting under the proposal of Napoleon, who sought to link the Mediterranean and the Gulf of Suez, thereby establishing shorter sea and trade routes between Europe and India. Construction on the canal, one of the first great modern engineering triumphs, began in 1858 and ended in 1869. The canal, operated by Compagnie de Suez, was 44 percent owned by the Egyptian government, which at the time was engaged in a massive modernization program that landed the country in debt&mdash′imarily to the British government, which had established itself as the leading colonial power throughout much of North Africa and the Middle East. In order to reduce its debt, the Egyptian government agreed to transfer its 44 percent stake in the Suez Canal to the British government in 1875. The canal, which remained partly owned by Compagnie de Suez, nonetheless came under the de facto control of the British. Even so, the Suez concession proved highly lucrative to its French builder and operator, and Compagnie Universelle du Canal Maritime de Suez grew to become one of France's richest corporations.

Meanwhile, another French powerhouse was being conceived. The advent of electricity and the steady increases in outfitting France's cities and towns with running water and sewer services led to the creation of a new group based in Lyon and called Lyonnaise des Eaux et de l'Eclairage. The company, which started with water services, quickly added other utilities services, including electricity generation and distribution and gas production and distribution, which at the time also served to provide public lighting networks. By the outbreak of World War I, Lyonnaise des Eaux et de l'Eclairage had established itself as one of France's leading utilities companies. The company next began to expand internationally, building up a network of international operations located primarily among France's colonial holdings, including Morocco and Algeria in North Africa, Togo and Congo in Central Africa, and various island possessions in the Pacific.

In the middle of the 20th century, however, both Lyonnaise des Eaux et de l'Eclairage and Compagnie Universelle du Canal Maritime de Suez were to see their businesses altered by government intervention. Lyonnaise des Eaux et de l'Eclairage's turn came following World War II, when the French government, faced with the task of reconstructing the country after the long German occupation, nationalized the gas and electricity industries in 1946. Refocused on its water services, the now-named Lyonnaise des Eaux began building its network of water customers, topping the 300,000 mark by the end of the 1950s.

The merger of the two companies created a French giant with annual revenues of FFr 190 billion (approximately US$35 billion) per year.

1956–1979

At that time, Compagnie Universelle du Canal Maritime de Suez itself was in the process of changing its identity--literally at gunpoint. With the rise to power of Gamal Abdel-Nasser in 1956, the British army abandoned its military protection of the Suez Canal. One month later, in July 1956, Nasser nationalized the Suez Canal. An attempt to retake the canal by force--in a campaign mounted by French, British, and Israeli troops in December of that same year&mdash-ded under pressure from the United Nations.

Deprived of the activity that had provided its name for nearly a century, Compagnie Universelle du Canal Maritime de Suez renamed itself Compagnie Financière de Suez in 1958 and began a new life as one of France's major financial powers. Taking the form of a holding company, Compagnie Financière de Suez quickly began amassing a variety of investments in different sectors, not least of which was the banking sector, when the company created its own bank in 1959. The Suez bank, taking on the name Banque de Suez et de l'Union des Mines (BSUM) in 1966, became one of the company's most important and most profitable holdings. This was particularly the case after the takeover of the Bank of Indochina, forming the Banque Indosuez in 1974.

The mid-1960s had already seen Suez take on another significant holding: that of Lyonnaise des Eaux, when Suez purchased the majority shareholder's position in the growing water utility. Despite Suez's financial position in Lyonnaise des Eaux, the two companies' operations were to remain separate for the next 30 years. Nonetheless, the powerful financial backing of Suez and other shareholders enabled Lyonnaise des Eaux to begin an expansion drive that was to make it not only one of the world's top water services and treatment companies before the end of the century, but a diversified conglomerate in its own right.

One of Lyonnaise des Eaux's earliest expansion moves came in 1972 with the acquisition of Degrémont, boosting the company to the leading ranks of water treatment and distribution services providers. Diversification followed throughout the rest of the decade. In 1975, the company acquired a position in Cofreth, taking it into heating equipment and services. Waste management followed with the acquisition of a major stake in SITA, while the company moved beyond utility services and into mortuary services with the acquisition of PFG in 1979.

Powering into the 21st Century

1982–2000

Lyonnaise des Eaux continued to pursue its international expansion, moving into the water distribution and wastewater treatment markets in Spain, the United Kingdom, the United States, and into other foreign markets. Lyonnaise des Eaux also added to its diversified portfolio in 1986 when it launched its own cable television subsidiary, Lyonnaise Communications, later renamed Lyonnaise Câble before joining with the cable television operations of France Telecom to become NOOS. The following year, Lyonnaise des Eaux boosted its French communications position when it took a stake in the new French independent television start-up, M6 Television.

By then, Compagnie Financière de Suez--which had undergone a brief period as a nationalized entity between 1982 and 1987, when it was once again privatized--was also preparing a major international move. In 1988, Compagnie Financière de Suez took over control of the diversified holding group Société Générale de Belgique (SGB). One of Belgium's oldest and most prominent holding companies--its interests included Générale de Banque as well as a major holding in Belgian energy provider Tractebel--SGB launched Compagnie Financière de Suez onto a new level of diversified operations, described by one International Herald Tribune observer as: 'a sprawling, unprofitable mess.'

Vowing to build itself into a two-headed industrial and financial giant, Compagnie Financière de Suez added to its debt load, already heavy after the SGB acquisition, by acquiring Groupe Victoire in 1989. The following year, the company changed its name to Compagnie de Suez. But the heavy debt load and the inability to turn around its new and unprofitable holdings caused the former canal builder to take on water. With its losses mounting, Compagnie de Suez named Gerard Mestrallet, who had headed the SGB holdings since the early 1990s, as CEO and president of the entire company in 1995. Charged with restructuring the company, Mestrallet made a series of moves that surprised the investment community, starting with the sell-off of Groupe Victoire in 1994, then taking the still more radical step of divesting what many considered Suez's chief asset, the Banque Indosuez, in 1996. The company's exit from banking continued with the sale of Générale de Banque in 1998.

In the meantime, Lyonnaise des Eaux itself had grown through its merger with construction giant Dumez in 1990, forming as Lyonnaise des Eaux-Dumez SA. The new company was now centered around its water distribution and other diversified services, and its construction operations, which included the GTM-Entrepose construction group, acquired by Dumez in 1987. The company's construction subsidiaries were reformed as Dumez-GTM in 1994, and then as GTM, before being spun off into a merger with the Vinci Group in 2000. At the same time, Lyonnaise des Eaux exited the mortuary services sector, selling off what was by then named OFG-PFG group.

As Lyonnaise des Eaux increased its communications operations--buying up 16 additional cable television concessions, making it France's largest cable television provider in 1995, and then taking part in the launch of French satellite television venture TPS--Compagnie de Suez, via its SGB share position, was moving closer toward energy services and building up a majority stake in Tractebel.

1997–2000

This set the stage for the merger of Lyonnaise des Eaux with its longtime majority shareholder Compagnie de Suez, an operation completed in 1997. The merger of the two companies created a French giant with annual revenues of FFr 190 billion (approximately US$35 billion) per year. At the time of the merger, the company outlined its plans for what was to become Suez Lyonnaise des Eaux, calling for an increased concentration on four principal markets: water, energy, waste treatment, and communications. While shedding operations outside of its new focus, the company began building its international positions, notably with the acquisition of SGB, and the raising of its stake in Tractebel to more than 99 percent.

Suez Lyonnaise des Eaux also began a series of significant acquisitions, such as the purchase of the non-North American activities of waste management company Brown-Ferris Industries, but also by adopting the policy of friendly takeovers of companies in which it already held shareholder positions. As such the company acquired water-treatment firms Calgon and United Water Resources in the United States in 1999. In that same year, the company paid more than US$4 billion to acquire Nalco Chemicals, the world's number one producer of chemicals for water treatment. The Nalco acquisition enabled Suez Lyonnaise des Eaux to edge out longtime rival Vivendi (formerly Société Générale des Eaux, and itself undergoing a transformation into a media and communications giant) as the world's number one water services provider.

Suez Lyonnaise des Eaux continued its transformation in 2000, buying up the remaining shares in SITA, before joining that company's waste treatment operations with those of Tractebel. The company also bought out the remaining stock in Trigen Energy, based in the United States, boosting its position in that crucial market. By mid-year 2000, the company was rumored to be in merger talks with German utility group Veba/Viag. With more than EUR 31 billion in revenues at the close of the 1999 year, Suez Lyonnaise des Eaux was prepared to defend its powerhouse position into the next century.